AQR Capital Management examines whether interest rates are responsible for value investing’s prolonged underperformance, ultimately arguing the relationship is weaker and less reliable than many assume. Despite value lagging growth from 2017 to early 2020, the paper finds little consistent evidence that rate movements explain returns, challenging a widely accepted narrative.
It’s Time For A Venial Value-Timing Sin
AQR
Research
16 Pages
Key Takeaways
Weak Rate Link: Across 1954–2019 data, most value strategies show low and unstable correlations with interest rate changes, with t-statistics often near 0 and lacking consistency.
Minimal Drawdown Impact: Interest rate variables explain only a small fraction of major value drawdowns, including the 2017–2020 period, where explanatory power remains economically insignificant.
Poor Predictive Power: Models using rate changes fail to forecast value returns, with predictive relationships statistically weak and offering limited practical use for timing strategies.
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