学术研究监测：价值缺口回顾

1、Global Research10 May 2020EquitiesAcademic Research MonitorQuantitativeGlobalA Review of the Value ShortfallWhy has Value Stopped Working?The explanations from academics broadly fall into two categories: 1) Investors use incorrect accounting methods and 2) The current economic environment does not a

2、llow for value stocks to thrive. We analyse both aspects and summarise conclusions from eight papers that approach this question from different angles.Is the Value Factor Dead?From the papers we summarise in this Academic Research Monitor only one author has the courage to claim that value investing

3、 will soon outperform again. The author argues that due to the increase in the value spread its time to increase the value weight.Amanda JorgensenAnalyst HYPERLINK mailto:amanda.jorgensen amanda.jorgensen+44-20-7568 3072Andreas Schroeder, CFAAnalyst HYPERLINK mailto:andreas.schroeder andreas.schroed

4、er+44-20-7568 4432Oliver Antrobus, CFAAnalyst HYPERLINK mailto:oliver.antrobus oliver.antrobus+61-3-9242 6467James CameronAnalyst HYPERLINK mailto:james-a.cameron james-a.cameron+61-2-9324 2074Cathy Fang, PhDAnalyst S1460518100001 HYPERLINK mailto:cathy.fang cathy.fang+86-213-866 8891Aaron Guo, CFA

5、Associate Analyst HYPERLINK mailto:aaron.guo aaron.guo+852-2971 7705Claire JonesAnalyst HYPERLINK mailto:claire-c.jones claire-c.jones+44-20-7568 1873Fabrice Schloegel, PhDAnalyst HYPERLINK mailto:fabrice.schloegel fabrice.schloegel+852-2971 6118Ashley Shi Associate Analyst HYPERLINK mailto:ashley.s

6、hi ashley.shi+61-2-9324 3862Paul WinterAnalyst HYPERLINK mailto:paul-j.winter paul-j.winter+61-2-9324 2080 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS AG London Branch. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 18. UBS does and seeks to do

7、 business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Introduct

8、ionIn this edition of the Academic Research Monitor we focus on the topic of value investing, a topic we have written on previously. In the Quantitative Monograph What happened to Value, and when will it return our colleague Oliver Antrobus explained the impact of demographics as well as how to bett

9、er define value. This publication is instead a review of recent papers that explain why they believe value hasnt worked over the past 12 years.Figure 1: Long/Short Value Portfolios30025020015010050HMLComposite ValueBook-to-PriceEarnings YieldSource: UBS Quantitative Research. HML is from Kenneth Fre

10、nchs Library. Data is from February 1992 to March 2020.The papers we review (please see HYPERLINK l _bookmark0 Figure 2: Academic Papers) broadly fall into two categories where some touch on both areas. They state that value hasnt worked because:We are defining value incorrectlyValue cannot outperfo

11、rm in this economic environmentFigure 2: Academic PapersFacts about Formulaic Value InvestingKok, Ribando and Sloan (2019)Explaining the recent Failure of Value InvestingLev, Baruch and Anup, Srivastava (2019)Is (Systematic) Value Investing Dead?Israel, Laursen and Richardson (2020)The X-value Facto

12、rThiago Souza (2019)Earnings, retained earnings, and book-to-market in the cross section of expected returnsBall, Gerakos, Linnainmaa and Nikolaev (2019)A Comparison of Global Factor Models Hanauer (2020)Its Time for a Venial Value-Timing SinClifford Asness (2019)Never Has a Venial Sin Been Punished

13、 This Quickly and Violently!Clifford Asness (2020)Source: UBS Quantitative Research.The papers from Kok, Ribando and Sloan (2019) and Baruch and Srivastava (2019) both discuss mean reversion, explaining how mean reversion is necessary for the outperformance of value and that mean reversion has been

14、slowing since the financial crisis. The slowing of mean reversion is mainly due to the economic environment where the authors argue that we are in an environment that is not ideal for a value investor.Israel, Laursen and Richardson (2020) take a different approach and question the above papers. The

15、authors review the arguments put forward against value investing and provide empirical evidence to counter each of these arguments.The paper from Thiago Souza (2019) as well as the paper from Ball, Gerakos, Linnainmaa and Nikolaev (2019) approach value investing from a different angle: the definitio

16、n of value. Thiago Souza (2019) argue for a different way of measuring value where Ball, Gerakos, Linnainmaa and Nikolaev (2019) explain which accounting terms within the book value are actually driving the correlation with average returns and thereby being the actual driver of value investing.Hanau

17、er (2020) searches for the dominant set of factors and finds that monthly version of the Fama-French value factor (HMLm) is part of the dominant set. Consequently the alpha of the HMLm factor is highly significant with respect to all factor models proposed in the literature. This orthogonalised vers

18、ion of value continued to perform very well over the past ten years.In the paper Its Time for a Venial Value-Timing Sin the author doesnt try and explain why value hasnt worked but instead argues when he believes value will outperform again. This paper was followed up by Never Has a Venial Sin Been

19、Punished This Quickly and Violently! explaining the performance of value YTD. HYPERLINK l _bookmark1 Figure 3 is an overview of the papers we review, identifying where we believe they belong in the Why has value stopped working metric. The numbers in the circles refer to the papers in HYPERLINK l _b

20、ookmark0 Figure 2.There is also one author, Clifford Asness, who believes that the last decades underperformance will turn and that value will soon outperform again.Figure 3: Value Underperformance due to:Wrong measureCorrect measure5637+8Wrong economic environment2 14Source: UBS Quantitative Resear

21、ch.Correct economic environmentOur research monitor comes amid continued underperformance of the value factor during the ongoing covid-19 crisis. As we show in our Weekly Factor Performance and Valuations, the composite value factor and all its components suffered large losses between 10% and 25% gl

22、obally YTD. These losses come without any signs of a rebound despite a broad based recovery in equity markets. However, this current experience could neither be captured by the papers we reviewed nor it is the point of discussion here. The focal point of the papers is the decade long underperformanc

23、e of value and their attempt to provide explanations and/or propose adjustments.Facts about Formulaic Value InvestingBy Kok, Ribando and Sloan (2019)In this research piece the authors argue why simple ratios such as: book-to-market, trailing earning-to-price and forward earnings-to-price are bad pro

24、xies for a comprehensive approach of estimating undervalued (value) stocks. They see two issues 1) Little evidence that strategies buying value stocks from simple ratios should outperform. 2) Accounting numbers used in these ratios are temporarily inflated.The first point is argued by analysing diff

25、erent time periods back to 1926. The result of this analysis is evidence for value outperforming during 1963-1981. This contradicts other research results1 but there is a difference in the calculations. Kok, Ribando and Sloan report the average one-factor alpha for HML whereas for example Davis et a

26、l. (2000) reported the average return to the HML portfolio. The authors believe Davids outperformance is due to exposure to the market as the portfolio has a beta of 0.37. Late during 1982-2015 the annual alpha of HML was 5.12% but this outperformance was driven solely by small caps. These results w

27、ere also identified by Clifford Asness in Asness et al. (2015) and led him to the conclusion: There is no strong stand-alone value premium among large caps. Perhaps there never was. Combining these results leads the authors to conclude: Outside the 1962-1981 period for which the value premium was in

28、itially documented, there is no significant evidence of a value premium for high book-to- market stocks. For robustness the authors carry out similar analysis for four value indices (S&P 500 Value, Russell 3000 Value, MSCI US value and CRSP US Large Cap Value) and find highly correlated results.The

29、second point relates to inflated accounting numbers.Book-to-market identifies stocks with overstated book values. The book value is then written down.Trailing earnings-to-price identifies stocks that have temporarily high earnings which will declineForward earnings-to-price are stocks which sell-sid

30、e analysts give more optimistic forecasts.The authors perform an analysis on the value ratios and calculate what actually contributes to the mean reversion. By mean reversion we refer to the increase in the ratio number2 for value stocks and the decrease in ratio number for growth stocks. Focusing o

31、n value stocks, the authors perform the calculations to understand if the current mean reversion is related to the numerator (increasing prices) or the denominator (decreasing book/earnings). For all mentioned ratios there is strong evidence that the mean reversion, nearly solely, arrives from the d

32、enominator (decreasing book/earnings). Therefore, the authors conclude: value stocks, selected by either market-to-book, trailing earnings-to-price or forward earnings-to-price, are not cheap stocks but rather stocks with temporarily inflated accounting numbers.The research piece ends by stating: We

33、 caution against using this evidence to conclude that such strategies can deliver healthy outperformance in the future.Simple ratios use inflated accounting numbersMean reversion is due to decreasing book/earnings1 Davis et al. (2000) found that value also outperformed before 1963.2 Market-to-book,

34、trailing earnings-to-price or forward earnings-to-price.Explaining the recent Failure of Value InvestingBy Lev, Baruch and Anup, Srivastava (2019)Baruch and Srivastava argue that value investing hasnt been profitable for almost30 years and they identify two major reasons for the underperformance of

35、investing in value stocks:Accounting measuresFundamental economic developments (mean reversion)Through data analysis the authors show how: the flaws in the accounting for intangibles, combined with fundamental economic shift, have undermined the value strategy.Value can be measured in many different

36、 ways and in this paper the authors decide to focus on the market-to-book ratio, the Fama French measure High minus Low value (HML3) and they also include the price-to-earnings ratio as a robustness check.Focusing firstly on the HML definition of value, the authors explain how a dollar invested into

37、 a value strategy in the early 1990s would have lost 10% by the end of 1999. In the beginning of the 2000s the value strategy had a boost mainly from the short side when low value stocks highly underperformed. This uptick in the value strategy carried on until around 2006 and since then HML has cons

38、istently underperformed.The authors explain their rationale for why they believe accounting has something to do with the performance of value investing. Their main argument is the transition from companies investing in tangible assets to investing in intangible asset, see HYPERLINK l _bookmark2 Figu

39、re 4.Figure 4: Investment Rates in Tangible and Intangible AssetsThe underperformance of value is due to: 1) flaws in accounting andeconomic developmentsCompanies have transitioned from tangible to intangible assetsSource: Lev and Sribastava (2019) Explaining the Recent Failure of Value Investing. G

40、raph represents US private companies. Used with permission.3 The authors use the definition from Fama and French which is a long-short portfolio based on the market-to-book ratio including an adjustment for size.Firms investing heavily in intangible assets i.e. IT, brands or human capital may appear

41、 overvalued due to the denominator (book) being understated. The reality is; if you measured the book value correctly, by including intangibles, the HML factor would be lower. The authors also argue that using the price-to-earnings measure leads to understated earnings for firms highly invested in i

42、ntangibles4 again resulting in the firms having a high valuation. These measurements result in an incorrect selection of stocks.The authors try and correct for the accounting misunderstandings by capitalizing the expensed intangible investments. Investing $1 in HML the 1st of Jan 1980 would have gro

43、wn to $1.75 where in the adjusted strategy this investment would have grown to $2.86, a difference of 68%.The second part of this research is regarding the mean reversion aspect of value investing. Value investors make their gains from mean reversion: If you rank stocks by market-to-book then value

44、stocks are at the lowest and can therefore only stay at the bottom or increase. Similarly for growth stocks where the outperformance is from shorting the growth stocks which will either stay high or drop down. The authors show - in three different ways - that mean reversion, over the last 10-12 year

45、s, has been slower than historically and has therefore not generated a return for value investors who are relying on the mean reversion effect. HYPERLINK l _bookmark3 Figure 5 illustrates the time a stock stays in the value or growth (glamour) basket.Authors correct the ratio by capitalising intangi

46、ble investmentsThe length of stay for a stock in the value basket has increasedFigure 5: Increase in Length of Stay in the Same Basket (Value vs Growth): 1970-2018Source: Lev and Srivastava (2019). Explaining the Recent Failure of Value Investing. Glamour refers to growth stocks. Used with permissio

47、n.It is clear that the time each stock stays in the same basket has increased. This is not favourable for the value investor who makes money from value stocks moving up and growth stocks moving down (mean reversion). The question is now: Why do we not see mean reversion to the same extent as earlier

48、? The authors believe this has roots in the financial crisis. The stocks present in the value basket are no longer stocks which increase in price but rather includes sectors which havent recovered after the financial crisis and therefore arent growing and moving out of the value basket. These are se

49、ctors such as: banking and consumer staples which havent truly recovered from the contraction in lending and the fall in consumer demand. Growth stocks include sectors such as: software, pharmaceuticals and electronics. These sectors increased profitability by having attractive business models and h

50、ave no problem raising funds to invest in tangible and intangible assets.4 This is due to: immediate expansion of intangibles, leading to overstated PE ratio:Is (Systematic) Value Investing Dead?By Israel, Laursen and Richardson (2020)In their paper Israel et al. dismiss the suggestion that value in

51、vesting is dead as premature. The authors review the arguments put forward against value investing and provide empirical evidence to counter each of these arguments. The paper stands in direct contrast to the two papers that we reviewed in the previous section: Facts about Formulaic Value Investing

52、by Kok et al. and Explaining the recent Failure of Value Investing by Lev et al.The authors recall Penmans (2010) residual income model to decompose the stock price into (i) the observable book value, (ii) near term forecasts of residual income and (iii) longer term (speculative) forecasts of future

53、 residual income and associated growth. Established firms will have most of their stock price explained by the current book value; while for start-ups, loss-making firms with negative book value, it will be the speculative growth component that drives their prices. Value investment works best the st

54、ronger the mean-reversion in the speculative growth part of the equation.First, the authors review the performance of value. While all value measures have seen their Sharpe ratios decline over the past ten years, B/P in the large cap space fared worst. The authors refer to their residual income mode

55、l to provide an explanation for this failure. Large stable stocks have most of their price explained by the book value while the impact of the speculative growth component is marginal.Having said that, the authors highlight that book-to-price is just among many measures of value. They refer to Kessl

56、er et al. (2020) who find that among 3,168 different flavours of value, B/P performed the worst; while earnings yield actually delivered a Sharpe of close to 1 over the period of 1987-2019.The residual income decomposition actually highlights that variables capturing the near term ability to generat

57、e income are part of the valuation framework besides the book value itself. The authors therefore consider five value measures: B/P (book to price), E/P (trailing earnings to price), FEP (forward earnings to price), S/EV (sales to enterprise value) as well as CF/EV (cash flow to enterprise value).Se

58、condly, the increased usage of share repurchases obviously distorts balance sheets and may trigger valuation measures that are useless. To assess the impact of share repurchases Israel et al. condition the five value measures on the level of share repurchase activity in both large caps and small cap

59、s. They find no systematic evidence of any performance difference and rule out share repurchases as the reason for value underperformance.Third, the authors note that the current accounting standards fail to recognise the increasingly important intangible assets. However such deficiencies of the acc

60、ounting system are common place and have happened before. The analysts have - and should continue to make - the necessary adjustments to overcome these shortcomings. For the empirical analysis, the authors draw on two new data sets5 which attempt to correct for such accounting deficiencies. The auth