Work

Value versus Growth: Time-Varying Expected Stock Returns

Year: 2010

Type: report

Abstract: Is 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.

Source: National Bureau of Economic Research

DOI: 10.3386/w15993

Authors: Huseyin Gulen, Yuhang Xing, Lu Zhang

Institutions: National Bureau of Economic Research, Purdue University West Lafayette, University of Michigan, Rice University

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2891707862

Cites: 31

Cited by: 23

Related to: 10