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Do Cash Flows of Growth Stocks Really Grow Faster?
Author(s) -
CHEN HUAFENG JASON
Publication year - 2017
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12518
Subject(s) - growth stock , cash flow , monetary economics , economics , value (mathematics) , value premium , financial economics , business , finance , stock market , biology , capital asset pricing model , mathematics , market maker , paleontology , statistics , horse
Contrary to conventional wisdom, growth stocks (i.e., low book‐to‐market stocks) do not have substantially higher future cash‐flow growth rates than value stocks, in both rebalanced and buy‐and‐hold portfolios. Efficiency growth, survivorship and look‐back biases, and the rebalancing effect help explain the results. These findings suggest that duration alone is unlikely to explain the value premium.