A great deal of academic empirical research has been published on value and growth investing. We review and update this literature, discuss the various explanations for the performance of value versus growth stocks, review the empirical research on the alternative explanations, and provide some new results based on an updated and expanded sample. The evidence suggests that, even after taking into account the experience of the late 1990s, value investing generates superior returns. Common measures of risk do not support the argument that the return differential is a result of the higher riskiness of value stocks. Instead, behavioral considerations and the agency costs of delegated investment management lie at the root of the value–growth spread.

Author Information

Louis K. C. Chan is professor of finance at the University of Illinois at Urbana-Champaign.

Josef Lakonishok is Karnes Professor of Finance at the University of Illinois at Urbana-Champaign.

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