The Critical Role of Conditioning Information in Determining if Value is Really Riskier than Growth

38 Pages Posted: 26 Mar 2008 Last revised: 25 Oct 2010

Michael J. Cooper

University of Utah - David Eccles School of Business

Stefano Gubellini

San Diego State University

Date Written: September 12, 2010

Abstract

Conditional asset pricing models have been used to determine whether the value premium and other CAPM anomalies are due to risk. We show that the conclusions on whether these anomalies are due to risk are very sensitive to the choice of the state variables used to define good and bad states of the world. We use a conditional CAPM framework allowing for alternative sets of plausible conditioning information and find that value appears to be riskier than growth in only about ten to twenty percent of specifications. We find even less evidence that size, issuance, momentum, and asset growth portfolio returns are due to risk. Overall, our results suggest that common CAPM anomalies are not due to risk.

Keywords: Asset Pricing, Conditional CAPM, Value Strategies

JEL Classification: G12

Suggested Citation

Cooper, Michael J. and Gubellini, Stefano, The Critical Role of Conditioning Information in Determining if Value is Really Riskier than Growth (September 12, 2010). Available at SSRN: https://ssrn.com/abstract=1107528 or http://dx.doi.org/10.2139/ssrn.1107528

Michael J. Cooper

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

Stefano Gubellini (Contact Author)

San Diego State University ( email )

5500 Campanile Drive
San Diego, CA 92182-8230
United States

HOME PAGE: http://www-rohan.sdsu.edu/~cba/facdev/gubellini.html

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