Perspective

Value Spreads Are Back to Tech Bubble Highs: Is Everyone Out There Cray-Cray?

This adds another three months of data to the May entry in our series of value spread updates. Over the past two months, some portion of the market went temporarily (I hope) insane, punishing value, as we measure it, to the point where the value spread has retraced most of its modest gains since the beginning of the year. The world doesn’t steadily move a little bit towards what we think is rational each day – painfully for us, it’s not a linear process. But this changes nothing about our belief in the outlook for value.

Perspective

Still Crazy After All This YTD

Over these additional three months, value’s returns, as we measure them, have continued apace. Since February, the value spread has fallen slightly, though it remains near its tech bubble peak, at around a 95th percentile. Reminder — a massive valuation dislocation says very little about the timing of when it falls back to earth. But it’s nice to see it start and still leave the spread incredibly high.

Perspective

That’s It, That’s the Update

Over these past two months, value’s returns, as we measure them, have been incredibly strong. This has killed the value spread. That is, it’s about as high as it was in the tech bubble. Just not as high as a few months ago. Yes, “killed” was sarcasm.

Perspective

That’s It, That’s the Blog

They say a picture is worth 1000 words. I’m embracing the concept in this post, which is just a single graph presenting the value spread constructed using the methodology that most closely reflects how we actually view value at AQR. Spoiler alert: the spread continued to explode higher in 2021. Despite this, we still made some money on value this year, which makes us very excited for 2022 and beyond. Also, if we’re wrong, I think I can make an NFT of this graph and really cash in.

Perspective

Is (Systematic) Value Investing Dead?

When value has underperformed for so long, it’s natural and proper that people wonder if it’s ever going to work again. To test the popular explanations for why value investing is “broken,” Cliff tweaks the value factor’s construction to remove the stocks that best fit these stories. He finds no “this time is different” explanation holds water, affirming our belief that the medium-term odds are rather dramatically on value’s side.

Journal Article

How Do Factor Premia Vary Over Time? A Century of Evidence

We examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes. The results offer support for time-varying risk premia models with important implications for theory seeking to explain the sources of factor returns.

Journal Article

Deep Value

We examine the efficacy of a hypothetical deep value strategy—where the valuation spread between cheap and expensive securities is wide relative to its history—across global asset classes and also provide new evidence on competing theories for the value premium.

Journal Article

Fact, Fiction and Value Investing

Value investing has been a part of the investment lexicon for at least the better part of a century, yet confusion about it remains.

Journal Article

Value and Momentum Everywhere

We find consistent value and momentum return premia across eight diverse markets and asset classes, and a strong common factor structure among their returns.

Journal Article

The Devil in HML's Details

This paper challenges the standard method for measuring “value” used in academic work on factor pricing.