Growth stocks outperform value stocks over the long term

Abstract

Previous studies have generally found that returns on growth stocks, or stocks with high price-to-earnings (P/E) ratios, often lag behind those of value stocks, or stocks with low-P/E ratios. This study examines the long-term (up to 18 years) performance of growth stocks versus value stocks when a buy-and-hold strategy is adhered to. The study examines the performance of growth versus value stocks of portfolios created during the period 1983–7. The findings of this study indicate that the long-term performance (14+ years) of growth stocks is higher than the long-term performance of value stocks for portfolios created during the years included in this study. After only five years, however, the growth stocks lagged behind the value stocks. These results tend to support the efficient market hypothesis.