Investor Expectations and the Performance of Value Stocks versus Growth Stocks

Abstract

Investment decision making is often categorized according to style: growth or value. Value stocks are typically characterized as having low P/Es. Studies from the late 1970s conclude that stocks with low P/Es produce positive risk-adjusted returns. Subsequent studies have found positive returns associated with other methods of categorizing a stock as a value stock, such as low price to book value and low price to cash flow. Growth stocks have opposite characteristics, such as high P/Es.