The Value Premium is Smaller, but Not Dead

Although the value factor is one of the longest standing for stocks, the value premium has shrunk. This according to a recent article in AAII.

The article notes that since Eugene Fama and Kenneth French published their 1992 paper titled, “The Cross-Section of Expected Stock Returns,” the data on value premiums has changed: “Over the period of July 1991 through June 2019, the average monthly value premium shrunk to .11% (or 1.3% per year). The average monthly growth premium improved to .01% (or .12% per year). So, while the value premium did become considerably smaller, it didn’t die and go away.”

The article cites a recently published paper by Fama and French in which the team analyzed the 1991-2019 period to “respond to assertions about a post-publication elimination of the value premium”—noting the tendency for publicized criticism of an investment strategy to negatively impact the performance of that strategy due to a shift in investor confidence (and behavior). But the findings published in the paper were inconclusive—while the authors acknowledge that the value premium has in fact decreased, they attributed the shift to market volatility rather than to rattled investor confidence.

The article concludes: “Even with the uncertainty and shrinking premiums, there are still reasons to believe in value. The value premium did not go away.”