Brandes Institute Research Paper No. 2012-05

Abstract:

In previous versions of our Value vs. Glamour study we have explored the historical performance of stocks based on their fundamental characteristics and quantified a value premium. Results have shown that over the long term, unpopular “value” stocks, those that are associated with companies experiencing hard times, operating in mature industries or facing adverse circumstances have outperformed their more popular “glamour” counterparts — fast-growing companies, often from dynamic industries with a relatively high profile. Expanding on the work of noted academics, we extended the scope of their research to determine if the value premium was consistent across global markets. In this update from our 2010 work, we expand our study through 2012 to include the recent worldwide economic downturn in developed markets and examine if value investing has worked in emerging markets over the long term.

This paper does not attempt to resolve why the value premium is evident, or explain its persistence. Instead, it seeks to quantify the value premium and gauge its prevalence. By examining returns for U.S. stocks from 1968-2012 and stocks outside of the U.S. from 1980-2012, this study reveals a consistent value premium across:

Value Stocks vs. Glamour Stocks: A Global Phenomenon – Introduction

Exhibit 1 shows, over the long term, there remains strong evidence of a global value premium. However, returns for all stocks dropped on average since 2007, those in the value deciles fell more than those in the glamour deciles. Exhibit 1 shows that value decile 10 had an annualized average return of 15.7% through 2007 and 14.2% over the entire period, a diff erence of 1.5%. Th e disparity between the two periods in decile 1 was only 0.8%; reflecting the difficult environment for value stocks over the past few years.