The Deep Value

AQR

Cliff Asness

Research

59 Pages

AQR Capital Management examines “deep value” periods when valuation spreads between cheap and expensive assets become extreme across equities, bonds, and currencies. The paper argues these episodes often reflect behavioral overreaction, not just risk, with deep value opportunities clustering around crises like 2000 and 2008.

Key Takeaways

Extreme Spreads Matter: Value strategies returned 1.2% monthly in top quintile U.S. deep value periods versus 0.0% in bottom quintile environments.
Diversified Timing Works: The overall intra deep value strategy generated more than 6.4% alpha with a t statistic above 5 by aggregating 515 strategies.
Crises Create Opportunity: Deep value events clustered around 2000 and 2008, while simulated portfolio Sharpe ratios improved from 1.8 to 2.0 using partial deep value allocation.
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