Daily Archives: Nov 13, 2020 at 08:35 pm EST

Research Review | 13 November 2020 | Factor Investing

Resurrecting the Value Premium
David Blitz (Robeco) and Matthias X. Hanauer (Technische Universität München)
October 15, 2020
The prolonged poor performance of the value factor has led to doubts about whether the value premium still exists. Some have noted that the observed returns still fall within statistical confidence intervals, but such arguments do not restore full confidence in the value premium. This paper adds to the literature by showing that the academic value factor, HML, has not only suffered setbacks in recent years but has, in fact, been weak for decades already. However, we show that the value premium can be resurrected using insights that are well documented in the literature or common knowledge among practitioners. In particular, we include more powerful value metrics, apply some basic risk management, and make more effective use of the breadth of the liquid universe of stocks. Our enhanced value strategy also suffers in recent years, but this is largely explained by an extreme widening of valuation multiples similar to the late nineties. We conclude that a solid value premium is still clearly present in the cross-section of stock returns.

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Macro Briefing: 13 November 2020

US election security officials: ‘no evidence’ voting systems were compromised: UST
China congratulates Biden on winning election: CNN
China warns of response after Pompeo says Taiwan not part of China: RTRS
Trump orders ban on US investments in ‘Chinese military companies’: BBC
UK, EU and US condemn China for crackdown on Hong Kong lawmakers: NPR
Report: temps to keep rising even if greenhouse emissions fall to zero: UST
Central bankers warn that economic risks remain high: NYT
Worldwide deaths from measles rose to 23-year high in 2019: NYT
Eurozone Q3 GDP rebound revised down: RTRS
Business inflation expectations tick up to still-modest 1.9% outlook: AF
Consumer inflation in the US was flat in October: BBG
US jobless claims fell to pandemic low but remain unusually high: CNBC