Value Booms

Journal of Banking and Finance. 2026. Vol. 190. Article 107745.

Chibane M., Victoria Dobrynskaya, Ouzan S.

This study reveals that the historical performance of value strategies is concentrated in relatively rare episodes of exceptionally high returns, which we refer to as value booms. Behavioral theories suggest that the value premium should vary with investor sentiment, a hypothesis supported by our empirical findings. In the US, the value premium is about three times its unconditional counterpart following two years of negative market returns, but disappears after two years of positive returns. These value booms often coincide with sharp momentum underperformance. We control for momentum exposure and confirm that this pattern is not merely a manifestation of momentum crashes. We propose a dynamic investment strategy that switches between value and momentum, depending on trailing market conditions, improving the Sharpe ratios of standard value and momentum strategies by over threefold and 60%, respectively. Our results are robust across alternative value definitions, investor sentiment measures, and international markets.

Keywords: market efficiency, stock market anomalies, overreaction, Momentum, Value

Publication based on the results of: Models and methods for identifying patterns in global and national financial markets (2025)