The Anatomy of Value and Growth Stock Returns

Author: Eugene Fama & Kenneth French

"We break average returns on value and growth portfolios into dividends and three sources of capital gain, (i) growth in book equity primarily due to earnings retention, (ii) convergence in price-to book ratios (P/B) due to mean reversion in profitability and expected returns, and (iii) upward drift in P/B during 1927-2006. The capital gains of value stocks trace mostly to convergence: P/B rises as some value firms become more profitable and their stocks move to lower expected return groups...."



Fama, Eugene F. and French, Kenneth R., The Anatomy of Value and Growth Stock Returns (August 2007). CRSP Working Paper.
Source: http://ssrn.com/abstract=806664

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