Executive Summary

z Although developed in the 1920s, value investing is still a major investment strategy. This research examines value investing in the context of the business cycle. z The study compares a value-oriented portfolio with a growth-oriented portfolio in an expansion and a contraction period of the business cycle. The value portfolio includes stocks with a high book-to-market ratio (B/P), earnings-to-price ratio (E/P), cash flow-to-price ratio (C/P), and dividend yield (DY), while the growth portfolio contains stocks with low values of B/P, E/P, C/P, and DY. z Three risk-adjusted performance measures—Sharpe (total risk-adjusted), Treynor (market risk-adjusted), and the information ratio (portfolio-specific risk-adjusted)-are used to compare the performance of the two portfolios. z Evidence suggests that the value portfolio consistently outperforms the growth portfolio throughout the business cycle. Seung-Woog (Austin) Kwag, Ph.D., is an assistant professor of finance i