VALUE-GROWTH INVESTING: AN INTERNATIONAL PERSPECTIVE

Abstract

We examine the persistence of value premium over the past two decades by studying the time-varying market risk inherent in value stocks. If this time-varying risk does exist, value stocks would outperform growth stocks in good periods when this market risk is lower, and under perform during bad periods, when this risk is higher. After conducting a series of tests, including modelling the value premium to macroeconomic risks and investigating the value premium during good and bad states, results from this research were consistent in showing that value stocks are not riskier than growth stocks, even during bad market conditions. This phenomenon continues to bewilder theorists as value stocks do not necessarily bear higher risks for its higher returns.