Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

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Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

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Title: Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns
Author: Campbell, John Y.; Polk, Christopher; Vuolteenaho, Tuomo

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Citation: Campbell, John Y., Christopher Polk, and Tuomo Vuolteenaho. 2010. Growth or glamour? Fundamentals and systematic risk in stock returns. Review of Financial Studies 23(1): 305-344.
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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.growth and value companies. Growth stocks are not merely "glamour stocks" whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firm's betas with market-wide cash flows, and this predictive power arises from the behavior of firm's cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.
Published Version: doi:10.1093/rfs/hhp029
Other Sources: http://www.nber.org/papers/w11389
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:9887622

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  • FAS Scholarly Articles [7362]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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