@article {Bellonejoi.2021.1.199, author = {Benoit Bellone and Raul Leote de Carvalho}, title = {Value versus Glamour Stocks: The Return of Irrational Exuberance?}, elocation-id = {joi.2021.1.199}, year = {2021}, doi = {10.3905/joi.2021.1.199}, publisher = {Institutional Investor Journals Umbrella}, 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.TOPICS: Security analysis and valuation, analysis of individual factors/risk premia, financial crises and financial market history, performance measurementKey Findings▪ The spread between valuations of value stocks relative to their expensive peers reached levels last seen in the 2000 tech bubble in every region and sector investigated. This expansion of value spreads explains the recent underperformance of value stocks.▪ The expansion of value spreads reflected an increasing difference between earnings growth forecasts for expensive and value stocks. Value spreads and earnings growth forecast differences peaked in 2020, suggesting that a regime of value spread compression has begun.▪ Value spread compression periods are characterized by strong outperformance of value stocks relative to expensive peers and by outperformance of smaller-cap stocks relative to larger-cap stocks. Other sector-neutral styles and their multifactor combinations also do well.}, issn = {1068-0896}, URL = {https://joi.pm-research.com/content/early/2021/08/27/joi.2021.1.199}, eprint = {https://joi.pm-research.com/content/early/2021/08/27/joi.2021.1.199.full.pdf}, journal = {The Journal of Investing} }