Hands-On Machine Learning for Algorithmic Trading

Rationale

There are both rational and behavioral explanations for the existence of the value effect. We will cite a few prominent examples from a wealth of research with further references listed in the GitHub repository.

In the rational, efficient markets view, the value premium compensates for higher real or perceived risks. Researchers have presented evidence that value firms have less flexibility to adapt to the unfavorable economic environments than leaner and more flexible growth companies, or that value stock risks relate to high financial leverage and more uncertain future earnings. Value and small-cap portfolios have also been shown to be more sensitive to macro shocks than growth and large-cap portfolios.

From a behavioral perspective, ...