Rethinking Stock Returns: New Evidence on Value Versus Growth

PLEASE NOTE
Capital Ideas is now Chicago Booth Review but unfortunately original articles are no longer available. If you click through you will be taken to the Internet Archive site to find an archived copy.

Investors generally subscribe to the conventional wisdom that growth stocks outperform value stocks. But a study of international portfolios by professors at the University of Chicago Graduate School of Business and the Yale School of Management has shown that in reality the reverse is true: Value stocks reap higher returns than growth stocks in markets around the world.

Editor’s Note: this is an old article so it would be interesting to see the authors’ subsequent work; one key finding is that CAPM does not work well (while CAPM considers sensitivity to the market return the authors found two other measures necessary: a measure to distinguish the risks in small stocks versus big stocks, and a measure to distinguish the risks in value stocks versus growth stocks.)

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