Faculty & Research

Abstract
Conventional wisdom holds that growth stocks (low book-to-market stocks) have higher future cash-flow growth rates and longer durations than value stocks, and that the value premium implies a downward sloping equity term structure. Empirical evidence suggests the opposite. Earnings of growth stocks grow more slowly than those of value stocks for both rebalanced and buy-and-hold portfolios. I point out survivorship and static biases in common empirical procedures. Growth stocks behave like short-duration assets: their prices are less sensitive to changes in discount rates, and their discount rates are more volatile. The value premium implies an upward sloping equity term structure. I argue that my results help explain a number of puzzling facts.