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Value versus Glamour Stocks: The Return of Irrational Exuberance?

Benoit Bellone and Raul Leote de Carvalho
The Journal of Investing February 2022, 31 (2) 75-93; DOI: https://doi.org/10.3905/joi.2021.1.199
Benoit Bellone
is a quant researcher in the Quant Research Group at BNP Paribas Asset Management in Paris, France
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Raul Leote de Carvalho
is the deputy head of the Quant Research Group at BNP Paribas Asset Management in Paris, France
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Abstract

Value stocks have endured a period of severe underperformance until recently. This article shows that the value spreads between valuations of value stocks and their most expensive peers expanded in all regions and sectors during this period of underperformance, reaching the same extreme high levels last seen at the peak of the tech bubble in 2000. Investors have rerated expensive stocks relative to their value peers, thus reflecting an expanding difference in their respective earnings growth forecasts. There are signs this trend may now have changed. Value spreads may have started a new period of compression at the end of 2020, led by shrinking differences in earnings growth forecasts. A compression in value spreads would be favorable for value stocks, small-capitalization stocks, and multifactor strategies.

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The Journal of Investing: 31 (2)
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February 2022
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Value versus Glamour Stocks: The Return of Irrational Exuberance?
Benoit Bellone, Raul Leote de Carvalho
The Journal of Investing Jan 2022, 31 (2) 75-93; DOI: 10.3905/joi.2021.1.199

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Value versus Glamour Stocks: The Return of Irrational Exuberance?
Benoit Bellone, Raul Leote de Carvalho
The Journal of Investing Jan 2022, 31 (2) 75-93; DOI: 10.3905/joi.2021.1.199
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  • Article
    • Abstract
    • WHAT HAS BEEN HAPPENING TO VALUE STOCKS?
    • THE RELATIONSHIP BETWEEN VALUE PREMIUM AND VALUE SPREADS
    • WHAT HAS BEEN HAPPENING TO VALUE SPREADS?
    • WHICH STOCKS HAVE BEEN DRIVING VALUE SPREADS?
    • THE IMPACT OF GROWTH DISPERSION IN VALUE SPREADS
    • IMPACT OF VALUE SPREAD CHANGES ON OTHER FACTOR STYLES
    • CONCLUSIONS
    • APPENDIX
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