Honing In On Value
Haim Mozes and John Launny Steffens, authors of the study “Getting More Value Out of the Value Factor,” which was published in The Journal of Investing’s Winter 2015 issue, have attempted to create a model that can accurately predict the performance of the value premium.
The factors in their model include analysts’ long-term earnings growth forecasts, overall equity valuations and volatility. They found that value stocks tend to outperform growth stocks when: equity markets are performing well (although this certainly wasn’t the case during the late 1990s); analysts are more optimistic about long-term earnings growth; volatility is low; and when equity valuations are expensive (as they were in March 2000).
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