Bridge over ocean
1 July 2000 Financial Analysts Journal Volume 56, Issue 4

New Paradigm or Same Old Hype in Equity Investing?

  1. Louis K.C. Chan
  2. Jason Karceski
  3. Josef Lakonishok

The recent relative stock-price performance of six U.S. equity asset classes (classified by size and by value-versus-growth style) differs markedly from the historical pattern. Large-capitalization growth stocks have apparently taken the place of small-capitalization and value stocks in investors' hearts. Have the size and value premiums of the past vanished for good? We explore three explanations of recent market behavior—the “rational-asset-pricing” hypothesis, the “new-paradigm” viewpoint, and the “behavioral” or “institutional” explanation. In our study, we examined the operating performance of the equity classes to see which hypothesis accounts for the recent behavior of returns. Our findings provide the most support for the behavioral explanation.

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