Value versus Growth: Time‐Varying Expected Stock Returns
AbstractIs the value premium predictable? We study time-variations of the expected value premium using a two-state Markov switching model. We find that when conditional volatilities are high, the expected excess returns of value stocks are more sensitive to aggregate economic conditions than the expected excess returns of growth stocks. As a result, the expected value premium is time-varying: it spikes upward in the high-volatility state, only to decline more gradually in the ensuring periods. However, out-of-sample predictability of the value premium is close to nonexistent.
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Bibliographic InfoArticle provided by Financial Management Association International in its journal Financial Management.
Volume (Year): 40 (2011)
Issue (Month): 2 (06)
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Postal: University of South Florida 4202 E. Fowler Ave. COBA #3331, Tampa, FL 33620
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0046-3892
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Other versions of this item:
- Huseyin Gulen & Yuhang Xing & Lu Zhang, 2010. "Value versus Growth: Time-Varying Expected Stock Returns," NBER Working Papers 15993, National Bureau of Economic Research, Inc.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
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- M. Eskandar Shah & Sourafel Girm & R. Hudson, 2012. "Rationalizing the Value Premium under Economic Fundamentals in an Emerging Market," Working Papers 12010, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
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