Abstract
Both academic and industry research supports the long–term efficacy of value strategies are far from riskless, however. They can have long periods of poor performance. In an effort to improve upon these strategies, the authors have tried to forecast these returns with mixed results. Most of these “style timing” models re based on macroeconomic factors. The authors take a different approach considering two simple factors: 1) the spread in valuation multiples between a value portfolio and a growth portfolio (the value spread), and 2) the spread in expected earnings growth between a growth portfolio and a value portfolio (the earnings growth spread). They find that the greater the value spread and the smaller the earnings growth spread, the better their forecast for value versus growth going forward. These results are statistically and economically strong.
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Cited By...
- Nothing Lasts Forever (and Everywhere): Fundamental Indexation at the Global Level
- Factor Timing with Cross-Sectional and Time-Series Predictors
- Does Past Performance Matter in Investment Manager Selection?
- Factors Timing Factors
- Contrarian Factor Timing is Deceptively Difficult
- INVITED EDITORIAL COMMENT: The Siren Song of Factor Timing aka "Smart Beta Timing" aka "Style Timing"
- Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies
- A Framework for Assessing Factors and Implementing Smart Beta Strategies
- Value Investing: Smart Beta versus * Style Indexes
- Factor-Timing Model
- Value Premium Across Countries
- On the Persistence of Style Returns