2 ms·

It's too early to declare that value is dead, a full market cycle will be needed at least. Looking at the Fama/French HmL series value strongly underperformed

by kgwgk 7y ago

It's too early to declare that value is dead, a full market cycle will be needed at least. Looking at the Fama/French HmL series value strongly underperformed growth in the late nineties (the HmL series had a 40% drawdown). The current drawdown is not as large yet (but it's true that it has been going on for over a decade). "Are Growth and Value Dead? "1999 was the sixth consecutive year in which the S&P BARRA Growth Index outperformed the Value Index. Some investors have questioned whether Value will ever again be a successful investment approach. Some of them believe this is a “New Era” in which technology stocks are revolutionizing the way business is done: “New Economy” stocks will survive while “Old Economy” stocks (mostly Value stocks) will become extinct." https://www.northinfo.com/documents/111.pdf https://www.northinfo.com/documents/111.pdf Edit: see also pages 7/8 in https://www.yardeni.com/pub/style.pdf https://www.yardeni.com/pub/style.pdf Those charts confirm what I wrote above, growth crushed value 20 years ago but didn't quite kill it...

mruts 7y ago
Current research from AQR seems to suggest that HmL isn't actually a persistent factor, just a behavioral bias without any economic basis (anymore?). Also current research by AQR suggests that that value is more structural, and is a real risk premia. I don't think anyone really knows whether value is a real risk premia, and if it's reason is structural or not. I think it's possible that many of the classic factors (value, momentum, carry, reversal, quality) are structural and do exist, but it's going to take a little bit more work than just creating a dollar neutral L/S portfolio exposed to E/P or whatever. If I had to guess, I would say that value is a real risk premia. That's not to say I would have put my money in it for the last 10 years, though..
- kgwgk 7y ago
  > Current research from AQR seems to suggest that HmL isn't actually a persistent factor [...] Also current research by AQR suggests that that value is more structural, and is a real risk premia. I'm lost. HmL is the classic "value" factor (as in the 3-factor model of Fama and French: market, size and value). I don't say that's the best definition possible (clearly it's not) and I know other definitions exist (but HmL has the advantage of being available for a century). For what it's worth, I prefer cash-flow-based metrics and total shareholder yield (dividends + buybacks + debt reduction). AQR use an improved definition (using data as current as possible) but I don't think it's terribly different: "The bottom line is that while the standard approach to value was a reasonable and conservative choice that has served the field well, it is not the best possible choice." https://www.aqr.com/Insights/Research/Journal-Article/The-Devil-in-HMLs-Details https://www.aqr.com/Insights/Research/Journal-Article/The-De... In their latest publication ("Factor Premia and Factor Timing: A Century of Evidence", that I've not yet read) they say: "We follow simple value measures used in the literature to capture “cheap” versus “expensive” securities within an asset class. For individual equities, we use the book-to-market ratio following Fama and French (1992, 2012) and Asness, Moskowitz, and Pedersen (2013). For global equity indices, we use the aggregate 10-year cyclically-adjusted price-to-earnings ratio CAPE (value-weighted average P/E ratio for all constituent firms in the index)."
  - mruts 7y ago
    Sorry, I mean Big minus Small. My bad! I guess I started associating high with big and low with small!

by kgwgk 7y ago

mruts 7y ago

Current research from AQR seems to suggest that HmL isn't actually a persistent factor, just a behavioral bias without any economic basis (anymore?). Also current research by AQR suggests that that value is more structural, and is a real risk premia. I don't think anyone really knows whether value is a real risk premia, and if it's reason is structural or not. I think it's possible that many of the classic factors (value, momentum, carry, reversal, quality) are structural and do exist, but it's going to take a little bit more work than just creating a dollar neutral L/S portfolio exposed to E/P or whatever. If I had to guess, I would say that value is a real risk premia. That's not to say I would have put my money in it for the last 10 years, though..

kgwgk 7y ago
> Current research from AQR seems to suggest that HmL isn't actually a persistent factor [...] Also current research by AQR suggests that that value is more structural, and is a real risk premia. I'm lost. HmL is the classic "value" factor (as in the 3-factor model of Fama and French: market, size and value). I don't say that's the best definition possible (clearly it's not) and I know other definitions exist (but HmL has the advantage of being available for a century). For what it's worth, I prefer cash-flow-based metrics and total shareholder yield (dividends + buybacks + debt reduction). AQR use an improved definition (using data as current as possible) but I don't think it's terribly different: "The bottom line is that while the standard approach to value was a reasonable and conservative choice that has served the field well, it is not the best possible choice." https://www.aqr.com/Insights/Research/Journal-Article/The-Devil-in-HMLs-Details https://www.aqr.com/Insights/Research/Journal-Article/The-De... In their latest publication ("Factor Premia and Factor Timing: A Century of Evidence", that I've not yet read) they say: "We follow simple value measures used in the literature to capture “cheap” versus “expensive” securities within an asset class. For individual equities, we use the book-to-market ratio following Fama and French (1992, 2012) and Asness, Moskowitz, and Pedersen (2013). For global equity indices, we use the aggregate 10-year cyclically-adjusted price-to-earnings ratio CAPE (value-weighted average P/E ratio for all constituent firms in the index)."
- mruts 7y ago
  Sorry, I mean Big minus Small. My bad! I guess I started associating high with big and low with small!