Do Investors Capture the Value Premium?
University of Notre Dame
University of Iowa
January 27, 2006
Do investors realize higher returns by investing in value stocks instead of growth stocks? Examination of a sample of equity indexes, mutual funds, and large-cap stocks reveals no evidence that value firms have earned higher returns than growth firms. The value premium reported in the literature is historically strongest for small-capitalization firms, yet average annual returns for small-cap equity funds are 14.10% for value funds compared to 14.52% for growth funds. Despite dramatic increases in mutual fund expense ratios from 1965 to 2001, fee differences across style funds cannot explain the absence of a value premium.
Number of Pages in PDF File: 26
Keywords: value premium, mutual funds, style, index returns, expense ratios
JEL Classification: G12, G14working papers series
Date posted: January 30, 2006
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