Factor/Style Investing

Deep Value

Winner of an Outstanding Article award in the 2022 Bernstein Fabozzi/Jacobs Levy Awards

Topics - Factor/Style Investing Factor Timing

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Deep Value

"Deep Value” was named a winner of an Outstanding Article award in the Journal of Portfolio Management’s 2022 Bernstein Fabozzi/Jacobs Levy Awards. Selected by the readers of the Journal of Portfolio Management, the awards recognize innovating and compelling research that contributes to the theory and practice of portfolio management. Read more from the Journal of Portfolio Management

The authors define deep value as episodes in which the valuation spread between cheap and expensive securities is especially wide relative to its history. Examining global individual equities, equity index futures, currencies, and global bonds, the authors find that deep value is (1) highly compensated; (2) related to worsening fundamentals; (3) associated with higher risk but not fully explained by known risk factors; and (4) characterized by selling pressure related to overextrapolation of past returns and, although arbitrageurs take the other side, they face elevated trading costs and risk. These findings support a theory of return extrapolation driving the value risk premium over other  behavioral and rational explanations.

Published In

Journal of Portfolio Management

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