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Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

John Y. Campbell^1,2; Christopher Polk^1,2; Tuomo Vuolteenaho³

¹ Arrow International (United States) · ² London School of Economics and Political Science · ³ Harvard University

The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices, driven by shocks to market discount rates, while the cash flows of value stocks are particularly sensitive to permanent movements, driven by shocks to aggregate cash flows. Thus, the high betas of growth (value) stocks with the market's discount-rate (cash-flow) shocks are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely “glamour stocks” whose systematic risks are purely driven by investor sentiment. More generally, the systematic risks of individual stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.

DOI

10.1093/rfs/hhp029

Volume

23 (1)

Pages

305-344

Language

en

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