Several major studies document that low price-to-book stocks have historically earned higher average returns.
Supporting Studies
| Study | Sample | Finding |
|---|---|---|
| Fama & French (1992), The Cross-Section of Expected Stock Returns | U.S. stocks, 1963–1990 | Book-to-market strongly predicted average stock returns; the relationship persisted in both halves of the sample. |
| Lakonishok, Shleifer & Vishny (1994), Contrarian Investment, Extrapolation, and Risk | U.S. stocks, 1968–1990 | Value strategies using ratios including book-to-market outperformed glamour stocks by approximately 10–11 percentage points annually. |
| Fama & French (1998), Value Versus Growth: The International Evidence | 13 major markets, 1975–1995 | High book-to-market portfolios outperformed low book-to-market portfolios by 7.68 percentage points annually globally and won in 12 of 13 markets. |
Conculsion
Stock portfolios that emphasize intrinsic value rather than perceived trendiness or glamour are statistically proven to outperform their low value peers over long periods of time. This conclusion is proven to hold true in varying market conditions.
