AQR Capital Management examines whether low interest rates actually explain value investing’s long stretch of underperformance. While the narrative is intuitive, their evidence suggests the relationship is weak, inconsistent, and often overstated. Even during 2017–2019, when value lagged sharply, interest rate moves explain only a small fraction of the drawdown.
Value And Interest Rates: Are Rates To Blame For Value’s Torments?
AQR
Tobias Moskowitz, Thomas Maloney
Research
30 Pages
Key Takeaways
Weak Rate Linkages: Across 1954–2019 data, most value factor sensitivities to rate changes are statistically insignificant at the 95% level, with relationships varying widely across periods and geographies.
Limited Drawdown Explanation: Yield curve flattening during 2017–2019 explains only a small portion of value’s losses, leaving the majority of the drawdown unattributed to rates.
Poor Timing Signal: Predictive models using interest rates show weaker results than contemporaneous ones, suggesting rate-based timing strategies offer little practical value for forecasting returns.
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