DIVERSIFICATION WITH VALUE VS. GROWTH STOCKS: THE IMPACT OF TIME HORIZON, RISK TOLERANCE, AND SECTOR TILT

Zugang Liu ； Jia Wang ； Ben Branch

《Advances in Quantitative Analysis of Finance and Accounting》 17期 (2019/12) Pp. 55-85

https://doi.org/10.6293/AQAFA.201912_(17).0003

摘要

Herein we study the optimal mix of value versus growth stocks by integrating the impacts of investment horizon, degree of risk tolerance, and sector tilt. First, we find that value stocks continue to outperform growth stocks in the long run in terms of three downside risk measures and risk adjusted returns. Second, we find that for the market to book based and dividend yield based value and growth portfolios, even though value stocks beat growth stocks, adding growth stocks to a portfolio of value stocks still appears to be beneficial, especially for more conservative investors. This empirical result is consistent with the analytical result from Jurek and Viceira (2011). Third, we create industry neutral value and growth portfolios and find that the industry neutral value portfolio tend to perform the best regardless of investors' risk aversion and investment horizon among the various combinations of value and growth portfolios. Our study extends the literature on value and growth stocks by exploring their performance across time horizons and integrating investors' risk tolerance and industry factor into the analysis. This is the first paper that explores the performance of industry neutral value versus growth styles. Our results are of great interest to professional money managers and individual investors.

關鍵字

Risk Tolerance ； Industry Effect ； Value ； Growth

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