This hypothesis may appear to be inconsistent with previous findings on contrarian investment theory, suggesting that value stocks fall less after negative earnings surprises relative to glamour stock, while value stocks rise more after positive earnings surprises relative to glamour stocks.
The value stocks are under-priced stocks relative to their intrinsic value indicators such as book value, earnings, cash flows, growth rate, while glamour stocks are over-price stocks relative to their intrinsic value indicators (E.
Various hypotheses have been proposed to explain why the return differential between value stocks and glamour stocks persists so long.
Consequently, glamour stocks are overpriced while value stocks are under priced.
In the neurotic environment that exists, the crowd still can't decide whether to buy highly-valued glamour stocks
with stupendous results and prospects, or undervalued, overlooked securities," said Kobrick.
Keep in mind, these are largely the same investors that have no problem piling into overvalued glamour stocks
like Green Mountain Coffee, Open Table, Salesforce.
In contrast, if the market overreacts to the past performance of value and growth stocks, then it should be disappointed by the earnings of glamour stocks
when they are announced, and pleasantly surprised by the earnings of value stocks.
The rationale for the value anomaly's existence over time may lie in investors overpaying for glamour stocks
with sexy stories and lofty expectations.
How good have the returns been in these glamour stocks since March 9, 2009?
There are companies you may never even have heard of, some of which are much smaller or in industries that are considered less "glamorous" by investors, whose returns matched or, in some cases, surpassed this list of the glamour stocks during the same time period.
While there's nothing wrong with investing in the hot glamour stocks, if you widen your search beyond the well known names you might find a hidden gem that pays off just as big.
Perhaps investors are over paying for glamour stocks
with high debt and small margins.