Risk and Return of Value Stocks

Posted: 29 Aug 1998

See all articles by Nai-fu Chen

Nai-fu Chen

University of California, Irvine - Finance Area

Feng Zhang

Timco & Salomon Smith Barney; Schroder Salomon Smith Barney (UK)


We find that value stocks are riskier because they are usually firms under distress, have high financial leverages, and face substantial uncertainty in future earnings. These risk characteristics are as powerful as size and book-to-market in explaining cross sectional differences in returns in Pacific Rim markets. Value stocks offer reliably higher returns in the U.S., Japan, Hong Kong, and Malaysia, corresponding to the higher risk, but not in the high growth markets of Taiwan and Thailand because the spread of risk between small, high book-to-market stocks and big, low book-to-market stocks is small.

JEL Classification: G12

Suggested Citation

Chen, Nai-Fu and Zhang, Feng, Risk and Return of Value Stocks. Available at SSRN: https://ssrn.com/abstract=112553

Nai-Fu Chen

University of California, Irvine - Finance Area ( email )

Irvine, CA 92697-3125
United States

Feng Zhang (Contact Author)

Timco & Salomon Smith Barney ( email )

One Tower Square-9PB
Hartford, CT 06183-2030
United States
860-954-3798 (Phone)

Schroder Salomon Smith Barney (UK) ( email )

Citigroup Centre
33 Canada Square, Canary Wharf
London E14 5LB
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics