Do Cash Flows of Growth Stocks Really Grow Faster?

Abstract

Contrary to conventional wisdom, growth stocks (i.e., low book-to-market stocks) do not havesubstantiallyhigher future cash-flow growth rates than value stocks, in both rebalanced and buy-and-hold portfolios. Efficiency growth, survivorship and look-back biases, and the rebalancing effect help explain the results. These findings suggest that duration alone is unlikely to explain the value premium.