There's a large body of evidence that value stocks have outperformed growth stocks. The evidence is persistent and pervasive both around the globe and across asset classes. While there's no debate about the premium, there are two competing theories for its existence.
The first of the two theories claims that value stocks are the stocks of riskier companies - their prices co-move with some risk factor, be it distress, liquidity or "Black Swan" risk (the risk of an extreme event). Professors Eugene Fama and Ken French constructed a proxy for this risk factor - the HmL factor (the return of stocks with high book-to-market values minus the return of stocks with low book-to-market values) - that can be used to assess a stock's sensitivity to this yet-to-be-identified source of risk in the economy. Value stocks have high HmL loadings and, therefore, are expected to deliver high average returns as risk
The stars seemed to be aligned, leading many investors to be concerned about there being a bubble in the stock market. First, we've had one of the greatest rallies ever, with the S&P 500 rising from its low of around 666 on March 6, 2009 to crossing the 1,800 level on November 18, 2013, a price-only increase of about 170 percent. That kind of increase causes investors to be concerned that prices are "too high." You hear phrases like, "the market has gotten ahead of itself." Adding fuel to the fire is the concern that the Federal Reserve's easy monetary policy (both its policy of basically a zero Federal Funds interest rate and its bond buying program) has fueled an asset bubble.
The stars came into further alignment when Professor Robert Shiller, author of "Irrational Exuberance," was recently awarded the Nobel Prize in economics, bringing more attention to the question: