Strategies · Core
Value Factor Effect in Stocks
Long high book-to-market (or cheap earnings/cash-flow) stocks and short expensive ones — classic HML as a book.
Definition
Sort on B/M, E/P, or CF/P; long cheap, short rich; rebalance slowly. Industry-neutral and quality overlays are how you avoid melting ice cubes. Multiple value metrics beat a single ratio.
Why it matters
It is the other half of the original three-factor world. Drawdowns can last a decade (2018–20).
Case
2018–20 growth regime: HML is a hole. 2022: value pays as discount rates rise. A 3-year track record is a regime, not a verdict.
How to read it
Which cheapness, sector-neutral or not, and financials treatment. Pair with quality so ‘cheap’ is not ‘dying.’
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- Common Risk Factors in the Returns on Stocks and BondsFama, French · 1993 · Journal of Financial EconomicsHML construction.
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