About UsGet In Touch
what is the value factor for quantitative equity portfolio investing
Back to topic: Learn about equity style factors


July 2024 · 5 min read

Value Factor


The concept of value is such a natural concept that the quantitative world of investing jumped onto this idea years ago. Various academic papers have started to provide structure and theoretical rigour to the properties that represent value investing.

What is the value factor ?

We can think of the value factor as a systematic method to identify and invest in stocks that appear to be priced cheaply compared to their fundamental balance sheets. One simple example of this can be observed by looking at the book-to-market ratio of a company.

If a company has a high book-to-market ratio it means the theoretical price of the equity of the company is higher than the stock price multiplied by the shares outstanding (market cap). This means that the market as a whole has priced this company at a theoretical value that is lower than the company equity. As a result, this means that the company is priced cheap or represents a value company. Growth companies represent the opposite to value and therefore trade at prices that mean their book-to-market ratios are very low - as investors are banking on future increases in the company assets or equity and so buy the stock today which leads to very high prices.

The value premium is often referred to as the spread between value companies, with for example high book-to-market ratios, versus growth companies with low book-to-market ratios.

Sign up to unlock

More in

Learn about equity style factors

Style Factors
July 06, 2022 · 5 min read