The Papers that Changed Investing: Value vs Growth: The International Evidence

It's 1998. The Clinton impeachment proceedings grip Washington, the European Central Bank is established and eleven nations are selected to adopt the Euro as their single currency, and two Stanford PhD students launch a search engine called Google.

Meanwhile on Wall Street, the dot-com frenzy is building. Tech stocks with no earnings are minting millionaires. Growth is everything. Old-economy value stocks — the cheap, beaten-down companies — are being left behind.

But two economists have just published evidence that those unloved stocks had been quietly outperforming in markets right across the globe.

Their paper: "Value Versus Growth: The International Evidence." Its authors: Eugene Fama and Kenneth French.

Welcome to The Papers That Changed Investing.

By the late 1990s, Fama and French had already documented a value premium in US stocks — the finding that cheap, out-of-favor companies had historically outperformed high-priced growth stocks.

But critics pushed back hard. Their argument: the value premium was a statistical accident. A quirk of US data. Unlikely to show up anywhere else.

So Fama and French faced a direct challenge. Was their US finding a one-country fluke? Or was something more systematic at work?

Their logic was straightforward. If the value premium reflects a genuine risk — not a data anomaly — it should appear in other countries too.

Think of it this way. A new car model that sells well in one country might just suit local tastes. The same model finding buyers in twelve countries — different incomes, different roads, different driving cultures? That's not a local quirk. There's something in the design.

They tested the value-versus-growth question across 13 major markets in Europe, Asia, and the Pacific. The international data was purchased by Dimensional Fund Advisors, an asset firm that references  Fama and French's earlier research.

If value outperformed consistently across borders, the case for it being a real, compensated risk — not a fluke — would be difficult to ignore.

Fama and French built a consistent framework across every market they studied.

In each country, they divided stocks into two groups: value stocks — companies trading cheaply relative to their book value — and growth stocks — the high-priced names investors were most excited about.

The key measure was the book-to-market ratio: what investors are paying for a company's shares versus what its assets are worth on paper. A high ratio means a cheap stock. A low ratio means investors are paying a premium for growth expectations.

Then they tracked which group performed better. Year after year. Market after market.

So what did Fama and French find?

First, the value premium was not a US-only phenomenon. Across the study period from 1975 to 1995, value stocks historically outperformed growth stocks in 12 out of 13 major markets.

Second, the return gap was substantial. Globally, value portfolios outpaced growth portfolios by 7.60 percent per year on average —a historical finding from a specific period, not a forecast of what investors should expect going forward.

Third, the standard Capital Asset Pricing Model couldn't account for these results. It took a risk factor specifically linked to financial distress — the added risk of owning companies under pressure — to explain the value premium across international markets.

Here's why this research matters  today.

Chasing high-growth stocks has meant paying a premium for excitement rather than value. Value stocks are cheap because they're less glamorous — some are struggling, some simply out of favor. That's the risk. And according to this research, that risk has historically been rewarded.

There's a second benefit this paper uncovered. Value stock returns across different countries showed lower correlation with each other than broader market returns did. When you hold value stocks internationally, they don't move in lockstep. That adds a genuine diversification benefit on top of the return premium.

Together, these findings support building globally diversified, value-tilted portfolios — an  approach discussed in the investment literature for decades.

Eugene Fama received the Nobel Prize in Economic Sciences in 2013. This paper answered a skeptic's challenge — and gave investors a principled, data-backed reason to look beyond their home market and take value seriously, worldwide.

Curious to learn more about  the international value? Speak with one of our wealth advisors for more information on this topic.

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Sources

Fama, E. F., & French, K. R. (1998). Value versus growth: The international evidence. Journal of Finance, 53(6), 1975–1999.

Available at ifa.com/academic-papers

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DISCLOSURES:

This video is for informational purposes only and does not constitute a solicitation or recommendation to buy or sell any security or investment product. The findings presented are based on peer-reviewed academic research and are intended for educational purposes only. Past performance is not a guarantee or reliable indicator of future results. The historical return data referenced in this video — including the 7.60% annual value premium — reflects a specific study period from 1975 to 1995 and should not be interpreted as a forecast of future returns. Investing involves risk, including the possible loss of principal. Some content in this video was generated with the assistance of artificial intelligence. Index Fund Advisors, Inc. is a registered investment advisor. For additional information about IFA, please visit adviserinfo.sec.gov or www.ifa.com.