Explaining the Recent Failure of Value Investing Available to Purchase

The long-standing and highly popular strategy of investing in low-valued stocks and selling short high-valued equities is widely believed to have lost its edge in the past 12 to 14 years. The reasons for this putative failure of value investing elude investors and academics, so assessing the likelihood of a return of value investing to its glory days is challenging. We show that value investing has generally been unprofitable for almost 30 years, barring a brief resurrection following the dotcom bust. We identify two major reasons for the failure of value investing: (1) accounting deficiencies causing systematic misidentification of value, particularly of glamour (growth) stocks, and (2) fundamental economic developments that significantly slowed the reshuffling of value and glamour stocks (mean reversion), which drove the erstwhile gains from the value strategy.