Performance of value and growth portfolios

Abstract

The choice of a portfolio style is considered an important step in the investment decision-making process. The most prominent equity investment styles are the "value" investment style and the "growth" investment style. This study at first includes an introduction to value and growth investment styles. The main body of this study includes a literature review from specific authors. In examining the forecasting power of firm characteristics for excess returns, the academic literature conventionally focuses on long-term returns. The systematic patterns found provide evidence that some equity classes generate above–average returns in the long run. In particular, value stocks outperformed growth stocks historically, and small capitalization stocks had higher annual returns than large capitalization stocks. In the investment management industry nowadays, value and size strategies are used for discriminating relative future performance. This implementation is known as style investing.