Is the value factor dying? Even the finance legends who helped give birth to the quant strategy can’t tell for sure.

In their latest study, Eugene Fama and Ken French calculate that the investing style of buying stocks with depressed valuations has notched lower returns in recent decades.

But the academic duo who fueled the value boom with their groundbreaking research in 1992 can’t figure out if the systematic trade has in effect fizzled out. Its performance, or realized premium, has just been too volatile month by month.

Their research helps to explain why managers in this corner of quantland are full of existential doubts. Value shares are underperforming yet again and near the cheapest versus growth counterparts since 2001.

In the U.S., the average monthly value return over a capitalization-weighted benchmark dropped to 0.11% between 1991 and 2019, as measured by their famed book-to-market value ratio, the authors calculate. That compares with a 0.42% premium harvested between 1963 and 1991, the timeframe for the original study.

“The initial tests confirm that realized value premiums fall from the first half of the sample to the second,” Fama at the University of Chicago and French at Dartmouth College wrote in the January paper. “But inferences from average premiums are clouded by the high volatility of monthly premiums.”

In other words, value’s worsening returns are effectively beyond dispute. But whether that represents an extended bout of misfortune or tells you something’s fundamentally broken remains the still unanswered question.

First « 1 2 » Next