Do Cash Flows of Growth Stocks Really Grow Faster?

  • Author(s): HUAFENG (JASON) CHEN
  • Published: Jun 20, 2017
  • DOI: 10.1111/jofi.12518

ABSTRACT

Contrary to conventional wisdom, growth stocks (i.e., low book‐to‐market stocks) do not have substantially higher future cash‐flow growth rates than value stocks, in both rebalanced and buy‐and‐hold portfolios. Efficiency growth, survivorship and look‐back biases, and the rebalancing effect help explain the results. These findings suggest that duration alone is unlikely to explain the value premium.

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