Is (Systematic) Value Investing Dead?

Israel, Ronen; Laursen, Kristoffer; Richardson, Scott

doi:10.3905/jpm.2020.1.194

Cited by 31 publications

(6 citation statements)

References 42 publications

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“…Proponents of value investing continue to rely on these findings. For example, Israel et al (2021) recommend treating expected growth in EPS beyond two Fig. 1 Example illustrating how firm-level and per-share growth rates can differ.…”

Section: Prior Researchmentioning

confidence: 99%

“…Yet most existing research concludes that cross-sectional variation in EPS growth rates is largely unpredictable (e.g., Lakonishok et al 1994;Chan et al 2003). This has led many researchers to conclude that stocks with higher earnings-to-price ratios have higher implied future returns (e.g., Lakonishok et al 1994;Chan et al 2003;Israel et al 2021;De la O et al 2023). An important implication of this conclusion is that value investing strategies that tilt toward stocks with higher valuation ratios should generate higher realized future returns.…”

Section: Introductionmentioning

confidence: 99%

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Predictable EPS growth and the performance of value investing

Sloan,

Wang

2023

Rev Account Stud

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Previous research finds that EPS growth rates are difficult to predict and reasons that much of the observed cross-sectional variation in valuation ratios is due to variation in implied future stock returns. Yet the observed cross-sectional relation between valuation ratios and realized future stock returns is weak. We revisit these findings using a refined measure of expected EPS growth rates and document robust evidence of predictability in EPS growth rates. Moreover, we find that this predictable growth extends beyond two years into the future and is strongly reflected in observed valuation ratios. We show that combining valuation ratios with our refined measure of expected EPS growth rates improves forecasts of stock returns, though return predictability remains weak. Thus, we conclude that most of the variation in valuation ratios is driven by predictable EPS growth.

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Section: Prior Researchmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Predictable EPS growth and the performance of value investing

Sloan,

Wang

2023

Rev Account Stud

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“…This new evidence confirms that systematic investing in value is highly risky, due to its poor performance during extremely distressing times. However, as emphasized by Israel et al (2021), the suggestion that value investing is dead seems to be premature. In contrast, the QMJ and MOM, and BAB factors show positive results for some stock markets.…”

Section: Mean Returns Volatilities and Sharpe Ratiosmentioning

confidence: 99%

The Effects of the COVID-19 Crisis on Risk Factors and Option-Implied Expected Market Risk Premia: An International Perspective

Nieto

Rubio

2022

JRFM

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Institutional investors often have to decide which strategy to use across international business cycles. This is especially important during economic and financial crises. The exogenous nature of the outbreak of the dramatic COVID-19 crisis represents a unique opportunity to understand the performance of risk factors during severe economic times across international stock markets. Even more important is to analyze how these factors behave across very different economic crises, such as the COVID-19 pandemic and the Great Recession. Although, the overall results show that the momentum and quality factors are the winners, with the value factor as the loser, this research also reports different responses of factors across crises and countries. The size, value, and defensive factors tend to perform worse during the health crisis relative to the Great Recession, while the momentum factor shows a poor performance during the financial crisis, but a positive one during the outbreak of COVID-19. The quality factor is an extraordinary defensive factor in both crises. Similarly, this paper reports heterogeneous responses of option-implied expected market risk premia across alternative stock market indices, and between the Great Recession and the COVID-19 crisis.

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“…The average return of the value factor was particularly poor in this period. Israel et al (2021) and Fama and French (2021) attempted to reinterpret the disappearance of the value premium-is it possible for factor decay of the value factor to occur? Factor premium is inseparable from macroeconomic factors.…”

Section: Market Cyclesmentioning

confidence: 99%

Factor-Based Investing in Market Cycles: Fama–French Five-Factor Model of Market Interest Rate and Market Sentiment

Kuo

Liu

2022

JRFM

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This study explores risk–reward patterns in the US stock market and establishes optimal factor-based investing using the Fama–French five-factor model through market cycles constructed by Shiller’s interest rates and Baker–Wurgler’s sentiments. Our emerging evidence confirms that the high-interest rate, high-sentiment cycle generates higher excess returns, and the low-interest rate, low-sentiment cycle generates lower excess returns, which supports the hypothesis that the market cycles as investment horizons have an asymmetric effect on stock returns. Furthermore, the size factor outperforms in the low-interest rate, low-sentiment cycle, whilst the value factor outperforms in the high-interest rate, high-sentiment cycle. Using the asymmetric GARCH model, the asymmetric leverage effect of interest rates and sentiments on five-factor returns is empirically demonstrated with explanatory power of five-factor characteristics. Unlike previous studies, our findings also imply that high- and low-sentiment cycles asymmetrically affect the value factor, and the value premium does not disappear over time, highlighting the role of the market cycles in five-factor returns.

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Is (Systematic) Value Investing Dead?

Cited by 31 publications

References 42 publications

Predictable EPS growth and the performance of value investing

Predictable EPS growth and the performance of value investing

The Effects of the COVID-19 Crisis on Risk Factors and Option-Implied Expected Market Risk Premia: An International Perspective

Factor-Based Investing in Market Cycles: Fama–French Five-Factor Model of Market Interest Rate and Market Sentiment

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