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The expected value premium

  • Chen, Long
  • Petkova, Ralitsa
  • Zhang, Lu

Fama and French (2002) estimate the equity premium using dividend growth rates to measure the expected rate of capital gain. We use similar methods to study the value premium. From 1941 to 2002, the expected HML return is on average 5.1% per annum, consisting of an expected-dividend-growth component of 3.5% and an expected-dividend-to-price component of 1.6%. The ex-ante HML return is also countercyclical: a positive, one-standard-deviation shock to real consumption growth rate lowers this premium by about 0.45%. Unlike the equity premium, there is only mixed evidence suggesting that the value premium has declined over time.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 87 (2008)
Issue (Month): 2 (February)
Pages: 269-280

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Handle: RePEc:eee:jfinec:v:87:y:2008:i:2:p:269-280
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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