Umeå University's logo

Investors have developed and used a range of investment strategies to generate a higherreturn than the overall market. Among these strategies, value and growth investing aretwo strategies that have become especially popular within the investment community.The difference between the two strategies originates from their differing perspectives onvalue ratios, where growth investors search for stocks with higher ratios on metrics likeprice-to-earnings (P/E) and price-to-book (P/B), called growth stocks, while valueinvestors seek stocks with lower ratios, called value stocks. The main purpose of thisstudy is to determine whether value or growth stocks provide a superior risk-adjustedreturn to offer investors an updated insight on portfolio allocation. The secondary purposeis to capture how resilient or sensitive the two types of stocks are to market volatility, toidentify characteristics that make certain compositions of stocks more effective duringdifferent periods. The sample consists of firms included in the S&P 500 index and thestocks are classified into value or growth stocks using the P/E ratio and the P/B ratio.Tests are performed each year between 2012 and 2023 to see how they perform, and withthe Sharpe ratio we are able to compare the two stock types based on their risk-adjustedreturn.

Early research on value and growth investing came to the same conclusion, that valuestocks give a higher return than growth stocks, which has been the general view on thetwo strategies. More recent studies have identified a potential shift in the previous view,with indications that growth stocks perform better, and in recent years, firms in the techoriented business have seen high ratios, but at the same time they have generated highreturns. The empirical results show that during the time period studied, growth stocksoutperform value stocks in some years, value stocks outperform growth stocks in others,and in some, no statistical difference between the two is found. Over the whole period,from 2012 to 2023, we find that growth stocks have provided a higher risk-adjusted returncompared to value stocks, aligning with the most recent studies and challenging theprevious view that value stocks perform better. During volatile times, in this studyidentified as 2020 to 2022 during the Covid-19 crisis, the empirical result show that involatile market conditions, value stock perform better and is the better alternative for riskadjusted return.