TY - JOUR T1 - Value and Interest Rates: Are Rates to Blame for Value’s Torments? JF - The Journal of Portfolio Management DO - 10.3905/jpm.2021.1.236 SP - jpm.2021.1.236 AU - Thomas Maloney AU - Tobias J. Moskowitz Y1 - 2021/03/25 UR - https://pm-research.com/content/early/2021/03/25/jpm.2021.1.236.abstract N2 - Value stocks sharply underperformed growth stocks from 2017 to 2020, exacerbating a longer period of lackluster performance that dates back to the Global Financial Crisis for some value factors. Some have blamed the interest rate environment—the low level of interest rates, falling bond yields, or the flattening yield curve. The authors examine these claims. Theory suggests the link between value and interest rates is ambiguous and complicated. Empirically, the authors find fairly modest links that change for different specifications. Evidence of a mild relationship between interest rate variables and value’s performance is found for some specifications but not others. Despite eye-catching patterns during a few episodes in recent years, related to changes in bond yields or the yield curve slope, the economic significance of any relationship is small and not robust in other samples. The authors conclude that the performance of value is not easily assessed based on the interest rate environment and that factor timing strategies based on interest rate–related signals are likely to perform poorly.TOPICS: Security analysis and valuation, analysis of individual factors/risk premia, financial crises and financial market history, performance measurementKey Findings▪ We find no evidence from historical data that a change in interest rate environment (level of interest rates) is a necessary condition for a value recovery.▪ We do find some evidence of a relationship between value factor returns and changes in yields or changes in the yield curve slope. However, the economic magnitude of this relationship suggests falling rates may have been more of a mild headwind than a major driver of value losses in recent years.▪ Predictive relationships are very weak, suggesting interest rate factors are not useful predictors of equity value performance. ER -