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The value premium and expected business conditions

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  • Kirby, Chris

Abstract

Prior research finds no discernible relation between the realized value premium (the spread between the returns on value and growth stocks) and forecasts of real GDP growth produced by professional economists. This finding appears to be driven by an unmodeled structural break. During the post-break period, the relation between the realized value premium and the forecasts is positive and statistically significant, which points to a procyclical relation between the expected value premium and expected business conditions. The evidence suggests that the expected value premium becomes negative during periods when economic growth is expected to be either negative or relatively weak.

Suggested Citation

  • Kirby, Chris, 2019. "The value premium and expected business conditions," Finance Research Letters, Elsevier, vol. 30(C), pages 360-366.
    • Handle: RePEc:eee:finlet:v:30:y:2019:i:c:p:360-366
    DOI: 10.1016/j.frl.2018.10.022
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    References listed on IDEAS

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    Cited by:

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    2. Hsieh, Hui-Ching & Nguyen, Van Quoc Thinh, 2021. "Economic policy uncertainty and illiquidity return premium," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).

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