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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Saturday, August 26, 2006

Value Stock Premium

We have talked about how historically that value has outstripped growth stocks over a long time span, but why is that? What explains the value premium and will this continue?

Many academic studies have shown how the stock market and the herd over-reacts to bad news and under-reacts to good news. This may mean there is more room for value stocks to grow more, and better than growth stocks which have their poremium priced in. Value historically has more risk than growth (standard deviation). Maybe the added return from value stocks is because of this added risk.

In the 1990s large cap growth stocks performed the best, but examining the evidence you will conclude that the long-term still favors value.

2 Comments:

  • At 8/26/2006 4:49 PM, Blogger kunpar said…

    I've actually done research in biotech Ipo's over the years and found that the two factors that show strong indications of affecting share price are # of headlines that discuss progress in clinical trials and the # of products in phase III clinical trials. Kind of random, but my research has low p-values and a standard of error of less than .1

     
  • At 8/28/2006 6:10 AM, Blogger Honest Abe said…

    How have those investments turned out for you?

     

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