Another study that favors value stocks

From the Journal of Finance LII(2): 859-874 June 1997
"Good News for Value Stocks: Further Evidence on Market Efficiency" (*)

Abstract: This article examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stock over a 5-year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differencial.

(*) I consider this far from "Evidence on Market Efficiency". If there are earnings surprises and "expectational errors", that means the market failed to forecast earnings correctly. Too many good stocks go down because of temporary panic and too many stocks go up because of hype.