Articlegreen2009

Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

John Y. Campbell · Christopher Polk · Tuomo Vuolteenaho

359 citations0/0 files storedReview of Financial Studies

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices, driven by shocks to market discount rates, while the cash flows of value stocks are particularly sensitive to permanent movements, driven by shocks to aggregate cash flows. Thus, the high betas of growth (value) stocks with the market's discount-rate (cash-flow) shocks are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely “glamour stocks” whose systematic risks are purely driven by investor sentiment. More generally, the systematic risks of individual stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.

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References

1993Common risk factors in the returns on stocks and bonds 1992The Cross-Section of Expected Stock Returns 1996Multifactor Explanations of Asset Pricing Anomalies 1973An Intertemporal Capital Asset Pricing Model 2006Investor Sentiment and the Cross‐Section of Stock Returns 2012The Econometrics of Financial Markets 1997The Econometrics of Financial Markets 1994Contrarian Investment, Extrapolation, and Risk

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