Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Explaining the Recent Challenge of Value Investing

Last Updated on 10 February, 2024 by Rejaul Karim

In their paper “Explaining the Recent Failure of Value Investing,” Baruch Lev from NYU Stern School of Business and Anup Srivastava from the University of Calgary delve into the enigma of the diminishing efficacy of the long-standing value investing strategy.

The widespread belief is that investing in undervalued stocks and selling short high-valued equities has lost its edge over the past decade. This perceived failure poses a challenge for both investors and academics in assessing the potential resurgence of value investing.

Through extensive data analysis, the researchers reveal that value investing has been largely unprofitable for nearly three decades, with only a brief revival following the dotcom bust.

The paper identifies accounting deficiencies and economic developments as major contributors to this decline, shedding light on the companies that may still offer gains from value investing.

Abstract Of Paper

It is widely believed that the long-standing and highly popular value investing strategy—investing in low-valued stocks and selling short high-valued equities—lost its edge in the past 10-12 years. The reasons for this putative failure of value investing elude investors and academics, making it a challenge to assess the likelihood of the return of value investing to its days of glory. Based on extensive data analysis we show that value investing has generally been unprofitable for almost 30 years, barring a brief resurrection following the dotcom bust. We identify two major reasons for the failure of value investing: (1) accounting deficiencies causing systematic misidentification of value, and particularly of glamour (growth) stocks, and (2) fundamental economic developments which slowed down significantly the reshuffling of value and glamour stocks (mean reversion) which drove the erstwhile gains from the value strategy. We end up by identifying the type of companies (stocks) that may still generate gains from value investing.

Original paper – Download PDF

Here you can download the PDF and original paper of Explaining the Recent Failure of Value Investing.

(An option to download will come shortly)

Author

Baruch Lev
New York University – Stern School of Business

Anup Srivastava
University of Calgary – Haskayne School of Business

Conclusion

In conclusion, Lev and Srivastava’s analysis of the recent failure of value investing sheds light on the challenges and complexities faced by this long-standing strategy. The extensive data analysis reveals that, contrary to popular belief, value investing has been unprofitable for nearly three decades, with only a brief resurgence during the dotcom bust.

The identified accounting deficiencies and fundamental economic developments stand as major contributors to the decline of value investing. These insights provide a nuanced understanding of the forces at play in the market and the reshuffling of value and glamour stocks, highlighting the inherent complexities of value investing.

The paper concludes by offering valuable insights into the type of companies that may still yield gains from value investing, thus providing a roadmap for navigating this evolving investment landscape.

Related Reading:

Value Investing: Smart Beta vs. Style Indices

Expected Investment Growth and the Cross Section of Stock Returns

FAQ

What are the two major reasons identified for the failure of value investing in the paper?

The two major reasons identified for the failure of value investing are:

  1. Accounting deficiencies: The paper suggests that systematic misidentification of value, particularly of glamour (growth) stocks, is caused by accounting deficiencies.
  2. Fundamental economic developments: The reshuffling of value and glamour stocks (mean reversion), which historically drove gains from the value strategy, has slowed down significantly due to fundamental economic developments.

What is the significance of the identified accounting deficiencies and economic developments in the context of value investing?

The identified accounting deficiencies and economic developments are significant contributors to the failure of value investing. Accounting deficiencies lead to the systematic misidentification of value and glamour stocks, impacting the effectiveness of the strategy. Fundamental economic developments, specifically the slowdown in the reshuffling of value and glamour stocks, play a crucial role in the decline of the gains historically associated with the value strategy.

How does the paper contribute to understanding the challenges faced by value investing, and what insights does it offer for navigating the investment landscape?

The paper contributes by providing a nuanced understanding of the challenges faced by value investing. It offers insights into the accounting deficiencies and fundamental economic developments that have impacted the profitability of the strategy. Additionally, the paper concludes by identifying the type of companies that may still generate gains from value investing, providing valuable guidance for investors navigating the evolving investment landscape.

Check Our Academic Scholarly Database List For Traders here

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password