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Small Cap and Value Investing Offer both High Returns and a Hedge

Bala G Arshanapalli and William B. Nelson
The Journal of Wealth Management Spring 2007, 9 (4) 44-50; DOI: https://doi.org/10.3905/jwm.2007.674806
Bala G Arshanapalli
A professor of finance at Indiana University Northwest in Gary, IN.
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  • For correspondence: barshana@iun.edu
William B. Nelson
A professor of finance at School of Business and Economics, Indiana University Northwest in Gary, IN.
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  • For correspondence: wnelson@iun.edu
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Abstract

Recent evidence shows that low book-to-market portfolios (value) tend to perform better than high book-to-market portfolios (growth). This article investigates the performance of portfolios sorted by size and book-to-market during the periods when the stock market declined and when the economy is in recession. The results reveal that value investment did not do as well as growth investment in the bull markets but surpassed the growth portfolios during bear markets. Value investment beat growth investment in non-recessionary and recessionary periods and thus acted as a hedge during recessions.

TOPICS: Style investing, portfolio construction, performance measurement

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The Journal of Wealth Management
Vol. 9, Issue 4
Spring 2007
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Small Cap and Value Investing Offer both High Returns and a Hedge
Bala G Arshanapalli, William B. Nelson
The Journal of Wealth Management Jan 2007, 9 (4) 44-50; DOI: 10.3905/jwm.2007.674806

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Small Cap and Value Investing Offer both High Returns and a Hedge
Bala G Arshanapalli, William B. Nelson
The Journal of Wealth Management Jan 2007, 9 (4) 44-50; DOI: 10.3905/jwm.2007.674806
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