The Value Premium and Time-Varying Volatility

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the differences in returns between value and growth stocks.

Author(s):

Chris Brooks

ICMA Centre, University of Reading

Xiafei Li

Bradford School of Management

Joelle Miffre

PhD, Professor of Finance, EDHEC Business School

This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the valueminus-growth portfolios. Our results show that the conditional variance model incorporating timevarying idiosyncratic risk can fully capture the post-1963 value premium. The conclusion is robust to the criterion used to sort stocks into value and growth portfolios, to the inclusion of the size premium into the conditional asset pricing model, and to the country under review (US and UK). Our paper therefore adds to the debate on the possible role of idiosyncratic risk in explaining equity returns.
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The Value Premium and Time-Varying Volatility...
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Type: Working paper
Date: le 05/05/2008
Extra information : Pour plus d'informations, nous vous prions de vous adresser à Joanne Finlay, Direction de la recherche de l'EDHEC [ joanne.finlay@edhec.edu] Les opinions exprimées sont celles de l'auteur et n'engagent pas la responsabilité de l'EDHEC.
Research Cluster : Finance

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