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Fact, Fiction, and Value Investing

Clifford Asness, Andrea Frazzini, Ronen Israel and Tobias Moskowitz
The Journal of Portfolio Management Fall 2015, 42 (1) 34-52; DOI: https://doi.org/10.3905/jpm.2015.42.1.034
Clifford Asness
is managing principal of AQR Capital Management in Greenwich, CT.
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Andrea Frazzini
is a principal at AQR Capital Management inGreenwich, CT.
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  • For correspondence: andrea.frazzini@aqr.com
Ronen Israel
is a principal at AQR Capital Management inGreenwich, CT.
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  • For correspondence: ronen.israel@aqr.com
Tobias Moskowitz
is the Fama Family Professor of Finance at the University of Chicago Booth School of Business in Chicago, IL, research associate at the National Bureau of Economic Research (NBER) in Cambridge, MA, and a principal at AQR in Greenwich, CT.
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  • For correspondence: tobias.moskowitz@chicagobooth.edu tobias.moskowitz@aqr.com
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Abstract

Value investing has been a part of the investment lexicon for the better part of a century, with the diversified systematic value factor (or value effect) studied extensively since at least the 1980s. The authors aim to clarify the many remaining areas of confusion about value investing, focusing on the diversified systematic value strategy, but also exploring how this strategy relates to its more concentrated implementation. They highlight many points about value investing and attempt to prove or disprove each of them, referencing an extensive academic literature and performing simple, yet powerful, tests based on easily accessible, industry-standard public data.

TOPICS: Security analysis and valuation, portfolio theory, portfolio management/multi-asset allocation

  • © 2015 Pageant Media Ltd
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The Journal of Portfolio Management: 42 (1)
The Journal of Portfolio Management
Vol. 42, Issue 1
Fall 2015
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Fact, Fiction, and Value Investing
Clifford Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz
The Journal of Portfolio Management Oct 2015, 42 (1) 34-52; DOI: 10.3905/jpm.2015.42.1.034

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Fact, Fiction, and Value Investing
Clifford Asness, Andrea Frazzini, Ronen Israel, Tobias Moskowitz
The Journal of Portfolio Management Oct 2015, 42 (1) 34-52; DOI: 10.3905/jpm.2015.42.1.034
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  • Article
    • Abstract
    • FICTION: VALUE INVESTING IS AN IDIOSYNCRATIC SKILL THAT CAN ONLY BE SUCCESSFULLY IMPLEMENTED WITH ACONCENTRATED PORTFOLIO
    • FICTION: VALUE IS A PASSIVE STRATEGY BECAUSE IT IS RULES-BASED AND HAS LOW TURNOVER
    • FACT: “FUNDAMENTAL INDEXING” IS ONLY SYSTEMATIC VALUE INVESTING
    • FACT: PROFITABILITY CAN BE USED TO IMPROVE VALUE INVESTING AND STILL BE CONSISTENT WITH A RISK-BASED EXPLANATION FOR VALUE
    • FICTION: VALUE IS “REDUNDANT”
    • FACT: VALUE INVESTING IS APPLICABLE TO MORE THAN JUST CHOOSING STOCKS TO OWN OR AVOID
    • FACT: VALUE CAN BE MEASURED IN MANY WAYS, AND IS BEST MEASURED BY A COMPOSITE OF VARIABLES
    • FACT: BY ITSELF, VALUE IS SURPRISINGLY WEAK AMONG LARGE-CAP STOCKS
    • FICTION: VALUE’S EFFICACY IS THE RESULT OF A RISK PREMIUM, NOT A BEHAVIORAL ANOMALY, AND IS THEREFORE IN NO DANGER OF EBBING
    • CONCLUSION
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