Unlocking the Secret to Stock Returns: How Value Firms Beat the Market
The article explores why some stocks earn higher returns than others. By studying how habits and production affect stock prices, researchers found that value stocks, which are temporarily less productive, eventually generate high cash flows. The value premium, or extra return on these stocks, reflects the risk of these cash flows changing due to market volatility. Evidence shows that value stocks have higher cash-flow growth and are more sensitive to market shocks.