This article summarizes academic research into multifactor asset pricing models, with specific emphasis on growth and value stocks. The article notes that empirical studies observe that value stocks typically generate superior risk-adjusted returns relative to growth stocks, and addresses implications for future equity investments if, in fact, the value premium is not a priced risk factor.

William Sharpe won the Nobel Prize in Economics largely for his work in the development of a single factor asset pricing model in which expected returns are linked explicitly linked to risk through calculation of a ‘Beta’ or ‘Market Risk’ factor. More recent academic research seeks to identify other factors responsible for security price changes. Multifactor analysis offers the promise of enhanced portfolio [1] risk control as well as increased expected returns. This essay provides the reader with an introduction into the nature of this type of academic research and outlines the history of research into the “value” risk factor during the period 1992 to the present. While a preponderance of evidence indicates that investors can expect to receive a reward for tilting the portfolio towards value stocks, the reasons for the existence of a value premium remain unclear. Therefore, investors should not count on receiving a higher reward for value during future economic regimes. The reward for value investing remains a “more-likely-than-not”.