Capturing the Value Premium in the U.K. 1955-2001
London Business School; University of Cambridge - Judge Business School
The Stephen M. Ross School of Business at the University of Michigan; University of Michigan Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research
Dimensional Fund Advisors Ltd
Using a new dataset of accounting information merged with share price data we find a strong value premium in the U.K. for the period 1955-2001. It exists among small-caps as well as among large-caps. However, there are challenges for small-cap managers wishing to capture these higher expected returns. We show that rebalancing-induced portfolio turnover for indexed small-value strategies can be substantial. Coupled with the relative illiquidity of the U.K. market for small-value stocks, this calls for strategies that sacrifice tracking accuracy in favor of reduced trading needs and lower trading costs.
Number of Pages in PDF File: 27
Keywords: Value Premium, Book-to-Market, Trading Cost
JEL Classification: G12, G14working papers series
Date posted: March 12, 2003
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