Style Timing: Value vs. Growth

January 01, 2000

The Journal of Portfolio Management

A large body of academic and industry research supports the efficacy of value strategies for choosing individual stocks. Value strategies are far from riskless, however. They can have long periods of poor performance.

Researchers have tried to improve on value strategies by incorporating various macroeconomic measures, including earnings yield on the S&P 500, the slope of the yield curve, corporate credit spreads and corporate profits. These “style timing” models have produced mixed results.

In this paper, we take a different approach. We have built a model that considers two simple factors: 1) the spread in valuation multiples between a value portfolio and a growth portfolio (the value spread), and 2) the spread in expected earnings growth between a growth portfolio and a value portfolio (the earnings growth spread). We find that the greater the value spread and the smaller the earnings growth spread, the better the forecast for value versus growth going forward. Our model currently forecasts near-historic highs in the expected one-year return of value stocks versus growth stocks. These results are statistically and economically strong.



  • AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

    This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.