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Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns

John Campbell (), Christopher Polk and Tuomo Vuolteenaho

No 11389, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices (driven by movements in the equity risk premium), while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices (driven by market-wide shocks to cash flows.) Thus the high betas of growth stocks with the market's discount-rate shocks, and of value stocks with the market's cash-flow shocks, are determined by the cash-flow fundamentals of growth and value companies. Growth stocks are not merely "glamour stocks" whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firms' betas with market-wide cash flows, and this predictive power arises from the behavior of firms' cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.

JEL-codes: G12 G14 N22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-fin and nep-rmg
Date: 2005-06
Note: AP
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Published as John Campbell & Christopher Polk & Tuomo Vuolteenaho, 2005. "Growth or glamour? fundamentals and systemic risk in stock returns," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
Published as John Y. Campbell & Christopher Polk & Tuomo Vuolteenaho, 2010. "Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 305-344, January.

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Journal Article: Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns (2010) Downloads
Working Paper: Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns (2010) Downloads
Journal Article: Growth or glamour? fundamentals and systemic risk in stock returns (2005) Downloads
Working Paper: Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns (2005) Downloads
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