Style-Related Comovement: Fundamentals or Labels?
Article first published online: 6 JAN 2011
© 2011 the American Finance Association
The Journal of Finance
Volume 66, Issue 1, pages 307–332, February 2011
How to Cite
BOYER, B. H. (2011), Style-Related Comovement: Fundamentals or Labels?. The Journal of Finance, 66: 307–332. doi: 10.1111/j.1540-6261.2010.01633.x
- Issue published online: 6 JAN 2011
- Article first published online: 6 JAN 2011
I find that economically meaningless index labels cause stock returns to covary in excess of fundamentals. S&P/Barra follow a simple mechanical procedure to define their Value and Growth indices. In doing so, they reclassify some stocks from Value to Growth even after their book-to-market ratios have risen, and vice versa. Such stocks begin to covary more with the index they join and less with the index they leave. Backdated constituent data from Barra reveal no such label-related shifts in comovement during the 10 years prior to the actual introduction of the indices in 1992.