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Value Investing: Tools and Techniques for Intelligent Investment by James Montier

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Chapter 6. Is Value Really Riskier than Growth? Dream On[6]

  • As regular readers of my work will know I am a major advocate of a behavioural approach to markets. However, in an effort to practise what I preach and avoid confirmatory bias, I have decided to see if I can find any evidence of the value premium being driven by risk factors, as claimed by fans of the efficient market view of the world.

  • At the most basic level, finance theorists equate risk with standard deviation. I believe this to be ludicrous. However, suspending my disbelief and using their measures I find that value stocks have generally had higher returns and lower risks than growth stocks. This is a direct violation of the basic tenet of classical finance that risk and return should be related.

  • Not to be easily dissuaded from their faith in the efficient markets hypothesis (EMH), the believers then turn to beta, ...

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