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Understanding Value in Equity Markets

Fact, Fiction and Value Investing

"Value" in equity markets is a term which is frequently debated and often misunderstood. The papers below examine different aspects of value, so-called "deep value" and value versus growth, both within equity markets and across equity markets.

Within equity markets, "value" stocks underperformed "growth" stocks during 2014/2015 but bounced back in 2016. What is the outlook from here onwards? Our first paper from T. Rowe Price examines the ongoing debate.

LED board value in equity markets papers

Equities: The Value-Growth debate moves on (T. Rowe Price, 2017)
Value versus Growth strategies have long been debated among investment theorists and investors. In recent months, Value indices have finally been having some time in the sun after a dire period for the style.

The Shiller CAPE Ratio: A New Look (Financial Analysts Journal, 2016)
The Shiller CAPE ratio has served as one of the best models for forecasting long-term future stock returns. However, recent forecasts may be overpessimistic as a result of changes in the computation of GAAP earnings used in the model.

Capturing the Rubber Band Effect: How We Do Deep Value (QMA, 2017)
This study by QMA explores its value team's process for measuring stock valuations.

There is a good reason why markets are expensive (Deutsche Asset Management, 2017)
Equities are expensive by nearly all measures. Still, given the robust economy, we would use any dips in the market as potential buying opportunities. 

Fact, Fiction, and Value Investing (AQR, 2015)
This paper by AQR Capital Management aims to bring clarity to the concept of "Value Investing". The authors explore how the diversified systematic value strategy correlates to its more concentrated application.

Quest for the Holy Grail: The Fair Value of the Equity Market (Research Affiliates, 2017)
The authors of this Research Affiliates paper discuss the quest for fair value in the U.S. equity market. They observe that investors are willing to pay higher prices when macroeconomic volatility is low, as it has been in recent years.

Value Investing now back in favour — will this continue? (Nikko AM, 2017)
During Q4 2016, we witnessed the value style stage a partial recovery. Following its subpar performance for at least two years or so, is this as good as it gets? Or will value continue to outperform after its initial recovery?

Reflation Catalysts: Unlocking Value in Real Assets (Cohen & Steers, 2017)
This paper argues that the market is turning strongly in favor of real assets. Following a period of low rates and low inflation, this reversal could have important implications for the attractiveness (and performance) of real assets.

Building a Better Deep Value Portfolio: Difficulties Mastered Are Opportunities Won (AQR, 2017)
This 17-page paper explains how to build a better "deep value" trading strategy that combines a rigorous quantitative framework with discretionary oversight to address the challenges inherent to opportunistic investing. 

Rethinking Conventional Wisdom: Why Not a Value Bias? (Research Affiliates, 2016)
This paper has been written by Research Affiliates. In it, the authors examine possible reasons for why a value bias does not figure more prominently in investors' conventional wisdom. 

Equity Risk Premiums: Determinants, Estimation and Implications (Damodaran, 2016)
In this paper, Professor Aswath Damodaran examines ways of estimating equity risk premiums (ERP). He begins by considering the economic determinants of ERP, perceptions of macroeconomic risk and risk aversion by investors.

Value and Momentum Everywhere (Asness, Moskowitz and Pedersen, 2013)
The authors of this paper study eight diverse asset classes and markets. They find consistent momentum and value return premia across all eight, and a common and robust factor structure in their returns.

Value and Momentum in Tactical Asset Allocation (2012)
This paper presents a concise quant method for combining momentum and value strategies in a tactical asset allocation framework. It compared the attractiveness of valuations across different asset classes.

Equity valuation academy: Value for money
Investors often ask how the best value opportunities can be identified. This 2013 report examines the academic literature in order to identify how value screening can best be approached.

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