Sunday, July 6, 2025
  • Login
Euro Times
No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology
Euro Times
No Result
View All Result

Growth, Value, and Skewness: Are Growth Stocks a Lottery-Like Bet?

by Derek Horstmeyer
October 9, 2022
in Investing
Reading Time: 6 mins read
A A
0
Home Investing
Share on FacebookShare on Twitter


Skewness in asset returns is a perplexing phenomenon and evokes different behavior from investors. Some show a preference for stocks with significant right skewness, which much like playing the lottery, hit the jackpot every once and a while and deliver outsized returns. Other investors try to steer clear of such volatility and opt for stocks that have no skewness or even demonstrate left skewness.

But how does skewness in returns relate to other factors in asset pricing? Might investors be betting on particular factors precisely because they want lottery-like skewness in their returns?

To answer these questions, we constructed cross-sectional growth and value portfolios and examined the distribution of monthly returns over five-year periods. From an investing universe of all the equities traded on the NYSE and NASDAQ since 1975, we created our growth and value portfolios out of the quintile of stocks with the highest and lowest P/E ratios, respectively. 

Our growth portfolio exhibited more right skewness in its returns, on average, than our value portfolio did. This held true over 6 of the 10 time periods.


Growth Stocks: Monthly Returns

Mean Median Volatility Skewness
1975 to 1980 3.02% 0.78% 53.24% 8.92
1980 to 1985 1.33% 0.02% 44.26% 1.10
1985 to 1990 2.04% 0.85% 55.99% 20.44
1990 to 1995 1.88% 0.38% 59.80% 10.51
1995 to 2000 3.44% 1.44% 67.22% 8.99
2000 to 2005 1.43% 0.01% 71.05% 2.54
2005 to 2010 0.71% 0.02% 48.44% 2.14
2010 to 2015 1.50% 0.90% 41.30% 7.30
2015 to 2020 6.94% 0.57% 50.22% 9.97
2020 to 2022 1.22% 0.28% 59.21% 5.10
Average 2.35% 0.52% 55.07% 7.70

Value Stocks: Monthly Returns

Mean Median Volatility Skewness
1975 to 1980 2.44% 0.00% 47.26% 2.07
1980 to 1985 1.66% 0.01% 44.25% 1.94
1985 to 1990 1.26% 0.02% 48.23% 14.73
1990 to 1995 1.26% 1.02% 55.05% 2.55
1995 to 2000 1.23% 0.00% 52.13% 5.62
2000 to 2005 2.43% 1.15% 18.08% 9.31
2005 to 2010 0.68% 0.00% 48.75% 2.24
2010 to 2015 1.70% 1.02% 38.59% 1.85
2015 to 2020 0.86% 0.56% 36.92% 1.45
2020 to 2022 1.38% 0.53% 82.10% 9.30
Average 1.49% 0.43% 47.13% 5.10

So, what can we glean from these results? Our theory is that skewness tends to move based on investor preferences. That is, when a particular factor is en vogue, skewness significantly increases while it’s in fashion. For instance, growth stocks were all the rage as the dot-com bubble inflated from 1995 to 2000, and they demonstrated significant skewness while value stocks showed a distinct lack of it.


Growth Stocks: Monthly Returns, 1995 to 2000

Chart showing Growth Stocks: Monthly Returns, 1995 to 2000

Growth’s popularity took off again in the 2010 to 2020 period, while value underperformed and again showed a lack of skewness in returns.


Value Stocks: Monthly Returns, 2010 to 2015

Chart showing Value Stocks: Monthly Returns, 2010 to 2015

Now, these results don’t tell us which direction the association goes, only that an association exists. The data suggest to us that when a particular asset pricing style is popular among investors, returns for that style exhibit greater skewness.

In sum, investors in growth stocks may be pursuing lottery-like payouts, especially when such stocks are in style.

If you liked this post, don’t forget to subscribe to the Enterprising Investor.


All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/piotr_malczyk


Professional Learning for CFA Institute Members

CFA Institute members are empowered to self-determine and self-report professional learning (PL) credits earned, including content on Enterprising Investor. Members can record credits easily using their online PL tracker.

Derek Horstmeyer

Derek Horstmeyer is a professor at George Mason University School of Business, specializing in exchange-traded fund (ETF) and mutual fund performance. He currently serves as Director of the new Financial Planning and Wealth Management major at George Mason and founded the first student-managed investment fund at GMU.

Jordan Doyle

Jordan Doyle recently graduated from George Mason University with a master’s of science degree in finance. He went to James Madison University for his undergraduate education, earning a bachelor’s of business administration degree with a major in finance. He is interested in investments, capital markets, and financial analysis and is currently an Affiliate to the Research and Policy Center at CFA Institute. He is also working towards becoming CFA charterholder.



Source link

Tags: betGrowthLotteryLikeSkewnessstocks
Previous Post

OPEC is cutting oil production. Gas prices may rise. Was Biden’s team naive?

Next Post

BTS members could face military conscription in South Korea

Related Posts

Buyers Beware: 7 Red Flags That Signal a Private Market Reckoning

Buyers Beware: 7 Red Flags That Signal a Private Market Reckoning

by Mark J. Higgins, CFA, CFP
July 3, 2025
0

Within the historical past of each nice disaster, you will see some masterly little bit of stupidity set fireplace to...

Fed Independence Tested, but Investors Shouldn’t Expect a Pivot

Fed Independence Tested, but Investors Shouldn’t Expect a Pivot

by Martin Fridson, CFA
July 1, 2025
0

Traders betting on a near-term plunge in rates of interest could also be mistaking political theater for financial coverage actuality....

10 Best Dividend Stocks For The Long Run

10 Best Dividend Stocks For The Long Run

by Robert Ciura
July 1, 2025
0

Revealed on June thirtieth, 2025 by Bob Ciura Traders searching for the very best shares for the long term ought...

Will Palantir Technologies Ever Pay A Dividend?

Will Palantir Technologies Ever Pay A Dividend?

by Robert Ciura
June 30, 2025
0

Printed on June thirtieth, 2025 by Bob Ciura Palantir Applied sciences (PLTR) is likely one of the market’s premier development...

Hospitals in Trouble: A Financial Playbook for Leaders and Investors

Hospitals in Trouble: A Financial Playbook for Leaders and Investors

by Umer Saleem Zuberi, CFA
June 30, 2025
0

Hospitals are beneath stress — from labor prices to ransomware, margin squeezes to misgovernance. This publish explores the rising wave...

From Models to Markets: A Conversation with Kenneth Blay

From Models to Markets: A Conversation with Kenneth Blay

by Frank J. Fabozzi, CFA
June 26, 2025
0

Kenneth Blay, Head of Analysis-World Thought Management at Invesco, brings a novel perspective to funding analysis, drawing from greater than...

Next Post
BTS members could face military conscription in South Korea

BTS members could face military conscription in South Korea

Partnering with Advisors to Enable Efficient Generational Wealth Transfer

Partnering with Advisors to Enable Efficient Generational Wealth Transfer

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Bank of Baroda also waives minimum balance charges amid deposits chase

Bank of Baroda also waives minimum balance charges amid deposits chase

July 6, 2025
This 9-in-1 off-grid portable power station has a 17-year lifespan – and it’s over 50% off

This 9-in-1 off-grid portable power station has a 17-year lifespan – and it’s over 50% off

July 6, 2025
Gunboats target cargo vessel in Red Sea; crew abandons ship | Shipping News

Gunboats target cargo vessel in Red Sea; crew abandons ship | Shipping News

July 6, 2025
At least 36 new tech unicorns were minted in 2025 so far

At least 36 new tech unicorns were minted in 2025 so far

July 6, 2025
Bitcoin Crash? That’s Exactly What ‘Poor Dad’ Kiyosaki Is Hoping For

Bitcoin Crash? That’s Exactly What ‘Poor Dad’ Kiyosaki Is Hoping For

July 6, 2025
Common Tongue Conditions in People With HIV

Common Tongue Conditions in People With HIV

July 6, 2025
Euro Times

Get the latest news and follow the coverage of Business & Financial News, Stock Market Updates, Analysis, and more from the trusted sources.

CATEGORIES

  • Business
  • Cryptocurrency
  • Finance
  • Health
  • Investing
  • Markets
  • Politics
  • Stock Market
  • Technology
  • Uncategorized
  • World

LATEST UPDATES

Bank of Baroda also waives minimum balance charges amid deposits chase

This 9-in-1 off-grid portable power station has a 17-year lifespan – and it’s over 50% off

  • Disclaimer
  • Privacy Policy
  • DMCA
  • Cookie Privacy Policy
  • Terms and Conditions
  • Contact us

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

No Result
View All Result
  • Home
  • Finance
  • Business
  • World
  • Politics
  • Markets
  • Stock Market
  • Cryptocurrency
  • Investing
  • Health
  • Technology

Copyright © 2022 - Euro Times.
Euro Times is not responsible for the content of external sites.

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In