Behavioural interpretation for existence of the value factor: investors extrapolate past growth rates too far into the future.
The market slowly realises that growth rates for values stocks are higher than initially expected.

The notebook explores three most popular factor investing approaches based on the following price multiples:
- Book value
- Free cash flow
- Dividends

Sector-neutral value factors are constructed by ranking stocks from US investment universe by value measures in descending order. We go long top 30 names and short bottom 30 names.The stocks are equally weighted and rebalanced monthly. The investment universe is updated yearly and new sets of stocks are allocated to long and short baskets.

The notebook concludes that the value factor does not exhibit consistent performance in US equity market and might indicate market efficiency with regards to the factor.
Although investing in value factor does not provide attractive returns, it must be considered for inclusion in multi-factor portfolios that are subject to future research.

It can be easily seen from the chart below that value factors do not exhibit consistent returns.
It is also important to take a closer look on the performance of the dividend-to-price factor during the years following financial crisis of 2007-2008. The substantial performance improvement during this period can indicate that the ability of the firm to pay dividend following the crisis are seen by the market as an indicator of healthy stream of company's earnings. However, the factor ignores alternative forms of payouts like share buybacks that can significantly impact factor performance.