Value premium
Cheap, unglamorous stocks have historically beaten expensive, glamorous ones.
What it means
The empirical regularity that 'value' stocks — those with low prices relative to fundamentals like book value or earnings — earn higher average returns than 'growth' or 'glamour' stocks. Standard finance treats it as compensation for risk, but a behavioral reading holds that investors over-extrapolate the past, bidding glamour stocks too high and neglected value stocks too low, so returns mean-revert as expectations correct. The premium is large, long-lived, and international, though it endures painful multi-year droughts. It matters because, like momentum, it sits at the center of the debate over whether anomalies reflect risk or systematic mispricing.
Examples
A boring, cheaply priced industrial firm tends, over the long run, to outperform a beloved high-flyer trading at a steep multiple.
Investors pile into whatever grew fastest last year and price it for that growth to continue. When it merely does well, the stock falls; the unloved firm only had to beat gloom.
Through the tech-led run of the 2010s, value strategies lagged growth year after year and many funds closed. Droughts that long are precisely what makes the premium so hard to hold.
First described in Fama & French (1992); Lakonishok, Shleifer & Vishny (1994).