Abstract

http://ssrn.com/abstract=2083166
 
 

References (23)



 


 



Decomposing Value


Joseph Gerakos


University of Chicago - Booth School of Business

Juhani T. Linnainmaa


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

July 1, 2015

Fama-Miller Working Paper
Chicago Booth Research Paper No. 12-18

Abstract:     
A firm's book-to-market is a function of its expected return, expected profitability, and future book-to-market. The part of book-to-market that correlates with past price movements is less informative about the latter two components, and therefore more informative about expected returns. The optimal exposure to value doubles when an investor hedges the risks shared by different types of value stocks. Our decomposition shows that value outperforms growth when investors receive good news about future economic growth, and it explains why the characteristics-versus-covariances test sometimes rejects the risk-based explanation for the value premium.

Number of Pages in PDF File: 52

Keywords: Value premium, risk and mispricing, factor models, firm characteristics


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Date posted: June 13, 2012 ; Last revised: July 23, 2015

Suggested Citation

Gerakos, Joseph and Linnainmaa, Juhani T., Decomposing Value (July 1, 2015). Fama-Miller Working Paper; Chicago Booth Research Paper No. 12-18. Available at SSRN: http://ssrn.com/abstract=2083166 or http://dx.doi.org/10.2139/ssrn.2083166

Contact Information

Joseph J. Gerakos
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Ave.
Chicago, IL 60637
United States
773-834-6882 (Phone)
Juhani T. Linnainmaa (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
(773) 834-3176 (Phone)
(773) 753-1052 (Fax)
HOME PAGE: http://faculty.chicagobooth.edu/juhani.linnainmaa
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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