Discussion paper

DP12685 Deep Value

We define “deep value” as episodes where the valuation spread between cheap and expensive securities is
wide relative to its history. Examining deep value across global individual equities, equity index futures,
currencies, and global bonds provides new evidence on competing theories for the value premium.
Following these episodes, the value strategy has (1) high average returns; (2) low market betas, but high
betas to a global value factor; (3) deteriorating fundamentals; (4) negative news sentiment; (5) selling
pressure; (6) increased limits to arbitrage; and (7) increased arbitrage activity. Lastly, we find that deep
value episodes tend to cluster and a deep value trading strategy generates excess returns not explained by
traditional risk factors.


Pedersen, L (2018), ‘DP12685 Deep Value‘, CEPR Discussion Paper No. 12685. CEPR Press, Paris & London. https://cepr.org/publications/dp12685