Value effect

The tendency of value stocks to outperform stock market benchmarks over longer time periods. Value stocks are those which trade at low in prices in relation to their fundamentals and are therefore considered by some investors to be undervalued. Their characteristics include high dividend yield and low price-to-book or low price-to-earnings ratio. Explanations for the value effect include as a compensation for risk, investors over-reacting to growth prospects for growth stocks or Tobin’s Q theory.

This definition is for general information purposes only