Quantitative Value Strategies Are Misleading Investors

The term ‘value investing’ is probably one of the most misused and misunderstood phrases in finance. The term is thrown about today with little regard to what it stands for, notably conducting detailed fundamental analysis on a security trading at a deep discount to intrinsic value. Value investing is also increasingly being adopted by quantitative investment strategies sometimes called Quantitative value strategies, which use ratios of common fundamental metrics such as book value and earnings to market price. However, the hallmark of such strategies is that they do not involve a comprehensive effort to determine the intrinsic value of the underlying securities before investing.

If research by U-Wen Kok, Jason Ribando and Richard Sloan is to be believed,...