Deep Value

Clifford S. Asness, John M. Liew, Lasse Heje Pedersen, Ashwin K. Thapar

Research output: Working paperResearch

Abstract

We define "deep value" as episodes where the valuation spread between cheap and expensive securities is wide relative to its history. Examining deep value across global individual equities, equity index futures, currencies, and global bonds provides new evidence on competing theories for the value premium. Following these episodes, the value strategy has (1) high average returns; (2) low market betas, but high betas to a global value factor; (3) deteriorating fundamentals; (4) negative news sentiment; (5) selling pressure; (6) increased limits to arbitrage; and (7) increased arbitrage activity. Lastly, we find that deep value episodes tend to cluster and a deep value trading strategy generates excess returns not explained by traditional risk factors.
Original languageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Number of pages62
Publication statusPublished - 2018
SeriesCentre for Economic Policy Research. Discussion Papers
NumberDP12685
ISSN0265-8003

Keywords

  • Value investing
  • Market efficiency
  • Bubbles
  • Behavioral finance
  • Over-reaction
  • Demand pressure
  • Arbitrage
  • Noise

Cite this

Asness, C. S., Liew, J. M., Pedersen, L. H., & Thapar, A. K. (2018). Deep Value. London: Centre for Economic Policy Research. Centre for Economic Policy Research. Discussion Papers, No. DP12685
Asness, Clifford S. ; Liew, John M. ; Pedersen, Lasse Heje ; Thapar, Ashwin K. / Deep Value. London : Centre for Economic Policy Research, 2018. (Centre for Economic Policy Research. Discussion Papers; No. DP12685).
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Asness, CS, Liew, JM, Pedersen, LH & Thapar, AK 2018 'Deep Value' Centre for Economic Policy Research, London.

Deep Value. / Asness, Clifford S.; Liew, John M.; Pedersen, Lasse Heje; Thapar, Ashwin K.

London : Centre for Economic Policy Research, 2018.

Research output: Working paperResearch

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Asness CS, Liew JM, Pedersen LH, Thapar AK. Deep Value. London: Centre for Economic Policy Research. 2018.