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'Value' consistently outperforms 'growth' - UK study

UK - The first comprehensive study of the ‘value effect’ in the UK equity markets demonstrates that value stocks have outperformed growth stocks for almost 50 years.

The study was produced jointly by the London Business School and Dimensional Fund Advisors.

Elroy Dimson, professor of finance at the London Business School, and one of the authors of the study, said the aim was to investigate the performance of value stocks in a non-US markets, where there was a lack of data. Dimson said; “The scale of the value effect is important internationally, because there is always the worry that the US is the only market where it has been measured. So you do need to find at least one other market where you have dug deeply into the data.”

The database for the LBS/Dimensional study includes all listed stocks in the UK market since 1955. The study used three sources of information – Datastream, which started to cover UK companies in the late 1960s, a Department of Trade and Industry database covering UK manufacturing companies, and balance sheets from official stock exchange year books.

The results confirmed the outperformance of value over growth in UK markets, Dimson said. “We found a strong value premium in the UK for the period 1955 to 2001. This value premium existed in both the small cap and large cap universes.

“We also found that dividend yield as a measure of value produces results strikingly similar to those found using book value of equity to market value of equity.”

Dimson said they were surprised to see how value had so consistently outperformed growth stocks, particularly in the 20 years from 1956 to 1976. “The stability in the value effect was sufficiently puzzling for us to do a series of robustness checks. The result was always the same.”

Dimensional Fund Advisors financed the study. Dimensional chief executive David Salisbury, said : “We are delighted to fund this work. Our interest is not in finding secret information and keeping it to ourselves but in promulgating information about the way the market works.”


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