A Study and Comparison of Growth and Value Stocks and Selection of Defining Criteria for Stocks being of growth/Value

It is important for investors to invest in the kind of stock to achieve optimal efficiency. An investment is required to be done properly in order to gain a good return on it. Hence, an appropriate investment strategy is needed. An investment strategy is a set of rules, procedures or behaviors that can guide investors in selecting the investment portfolio. Investments in stock market can be classified into two categories: 1. Growth Investing and 2. Value Investing. Growth strategy includes looking for stocks that have growth potentials where stock price goes up at certain times. Value strategy is used by those investors who are looking for stocks whose price has been undervalued, i.e., their value are less than what the company has issued. The goal of this study is to compare the growth and value investing in stocks and to determine which of these two groups can more efficiently make return for the investments. The required data was obtained from the softwares of Tehran Stock Exchange. In this study, shares that have low ratio of book value to market value have been introduced as growth stocks and the ones with the higher ratio as value stocks. In addition, the research has investigated on the relationship between the stock return and the net yield return of book/market value. Linear regression was used to clarify the relationship, and then an average test was carried out between the two populations. The results showed that there exists a linear relationship between the stock return and the net yield return of book/market value, and growth firms obtain higher return than value firms.