Growth or Glamour? Fundamentals and Systematic Risk in Stock Returns
The cash flows of growth stocks are particularly sensitive to temporary movements in aggregate stock prices, while the cash flows of value stocks are particularly sensitive to permanent movements in aggregate stock prices. Growth stocks are not merely ?glamour stocks? whose systematic risks are purely driven by investor sentiment. More generally, accounting measures of firm-level risk have predictive power for firms' betas with market-wide cash flows, and this predictive power arises from the behavior of firms' cash flows. The systematic risks of stocks with similar accounting characteristics are primarily driven by the systematic risks of their fundamentals.