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Expected returns on value, growth, and HML

  • Rytchkov, Oleg
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    In this paper, I analyze the predictability of returns on value and growth portfolios and examine time variation of the expected value premium. As a primary tool, I use the filtering technique, which accounts for time variation in expected cash flows and explicitly exploits the constraints imposed by the present value relation. I demonstrate that returns on value and growth portfolios are predictable, and the predictability is stronger for growth stocks. Applying the filtering technique to the HML portfolio, I build a novel powerful forecaster for the value premium. The new forecaster appears to be only weakly related to business cycle variables.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0927-5398(10)00031-9
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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 17 (2010)
    Issue (Month): 4 (September)
    Pages: 552-565

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    Handle: RePEc:eee:empfin:v:17:y:2010:i:4:p:552-565
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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