The underperformance of value stocks relative to their growth counterpart in recent years has led many investors to question whether a value premium truly exists.
This paper reconsiders the evidence about the value premium. In the first section, we apply a three-step test to determine whether the difference in returns between value and growth can be referred to as a “premium.” The second section provides evidence about the origin of the underperformance of value stocks in recent years. Finally, our concluding remarks will discuss the investment consequences of our findings and will highlight a few value investing caveats.
