We’ve changed our name. The BAM ALLIANCE has become Buckingham Strategic Partners. Find out more

BAM Intelligence

The Characteristics of Value versus Growth Investors

One of the great debates in finance is whether the source of the value premium is risk-based or behavioral-based. Extensive empirical literature on the value premium, which provides support for both explanations, has focused primarily on stock returns and the manner in which they are related to macroeconomic and corporate variables.

Value/Growth Investor Demographics

Sebastien Betermier, Laurent Calvet and Paolo Sodini, who contribute to the literature on this issue with the study “Who Are the Value and Growth Investors?”, published in the February 2017 issue of The Journal of Finance, took a different approach. Their paper investigated value and growth investing among Swedish residents over the period 1999 through 2007.

Following is a summary of their findings:

  • Households are not heavily tilted toward stocks in their employment sector. The average direct stockholder allocates 16% of their stock portfolio to professionally similar companies.
  • Value investors are substantially older, more likely to be female, have higher financial and real estate wealth, and have lower leverage, income risk and human capital than the average growth investor—investors with high human capital and high exposure to macroeconomic risk tilt their portfolios away from value.
  • Men, entrepreneurs and educated investors are more likely to invest in growth stocks.
  • These patterns are evident in both stock and mutual fund holdings.
  • The explanatory power of socioeconomic characteristics is highest for households that invest directly in at least five companies, a wealthy subgroup that owns the bulk of aggregate equity and may therefore have the greatest influence on prices.
  • Over their life cycles, households progressively shift from growth to value investing as they become older and their balance sheets improve, with 60% of the value ladder explained by changes in age, 20% due to changes in the balance sheet and 20% due to changes in human capital.
  • Households with high financial wealth, low debt and low background risk tend to invest their wealth aggressively in risky assets and select risky portfolios with a value tilt.
  • Households with high current income and high human capital levels tend to tilt their portfolios toward growth stocks. So do households with high income volatility and a self-employed or unemployed head. Further, households with members working in cyclical sectors tend to reduce their portfolios’ value tilts.

Betermier, Calvet and Sodini concluded that their findings “appear remarkably consistent with the portfolio implications of risk-based theories. The strong negative relationship between a household’s value loading and its macroeconomic exposure provides direct support for the hedging motive. Households in cyclical sectors go growth, which reduces their overall exposure to aggregate income risk.”

They add: “The value ladder [increasing exposure to value as investors age] provides further validation of the hedging motive. Over the life cycle, the household becomes less dependent on human capital and its hedging demand should get progressively weaker.”

Further Conclusions

The authors also found that sound balance sheets have positive effects on portfolio value tilts, providing further support for the risk-based explanation of value. This aligns with portfolio theory, as more financially secure households generally should be better able to tolerate investment risk.

Betermier, Calvet and Sodini note that their findings were not all one-sided in favor of a risk-based explanation. For example, overconfidence—which is more prevalent among men than women—is consistent with their finding of a growth tilt among male investors. They also found that, as “attention theory predicts, a majority of direct stockholders hold a small number of popular stocks.”

In addition, some of their evidence can be explained by complementary risk-based and psychological stories—the growth tilt among entrepreneurs, for instance, can be attributed to marked overconfidence in own decision-making skills.


While the results of their study provide strong support for a risk-based explanation of the value premium, as the authors observe, it’s not a one-sided story. In other words, their results, while providing support for the idea that the value premium is not a free lunch, also offer support for the idea that it just might be at least a free stop at the dessert tray.

There’s one last point to consider. Their finding of a value ladder, combined with the aging demographics of the U.S. investor population, might indicate we should expect an increased demand for value stocks. All else equal, that would lead to a larger realized value premium.

This commentary originally appeared July 5 on ETF.com

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.

The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2017, The BAM ALLIANCE

Share Button

Chief Research Officer

Larry Swedroe is Chief Research Officer for the BAM ALLIANCE.

Previously, Larry was vice chairman of Prudential Home Mortgage. Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

To help inform investors about the evidence-based investing approach, he was among the first authors to publish a book that explained evidence-based investing in layman’s terms — The Only Guide to a Winning Investment Strategy You’ll Ever Need. He has authored 15 more books:

What Wall Street Doesn’t Want You to Know (2001)
Rational Investing in Irrational Times (2002)
The Successful Investor Today (2003)
Wise Investing Made Simple (2007)
Wise Investing Made Simpler (2010)
The Quest for Alpha (2011)
Think, Act and Invest Like Warren Buffett (2012)
The Incredible Shrinking Alpha (2015)
Your Complete Guide to Factor-Based Investing (2016)
Reducing the Risk of Black Swans (2018)
Your Complete Guide to a Successful & Secure Retirement (2019)

He also co-authored four books: The Only Guide to a Winning Bond Strategy You’ll Ever Need (2006), The Only Guide to Alternative Investments You’ll Ever Need (2008), The Only Guide You’ll Ever Need for the Right Financial Plan (2010) and Investment Mistakes Even Smart Investors Make and How to Avoid Them (2012). Larry also writes blogs for MutualFunds.com and Index Investor Corner on ETF.com.

Industry Events

No events scheduled at this time.