Revaluation Versus Structural Factor Returns

Is the part of the return/alpha of a equity factor that is not associated with simple changes in factor valuation (ratio of long side average price-to-book value ratio to short side average price-to-book value ratio) especially predictive of future factor returns? In their September 2025 paper entitled “Revaluation Alpha”, Robert Arnott, Sina Ehsani, Campbell Harvey and Omid Shakernia define and examine:

• Revaluation return – the portion of historical factor return that comes from changes in factor valuation.
• Structural return – the historical factor return minus the revaluation return.

They investigate whether historical return and structural return are equally useful in predicting future factor performance. They further compare usefulness of such predictions compared to those of factor timing based on factor momentum (1-month and 12-month) and factor valuation (current average price-to-book ratio minus its historical average). Using historical monthly data for 14 equity factors widely studied in past research during July 1973 through December 2022, they find that:

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