The Value Spread as a Market Timing Signal: Evidence from Asia
Journal of Investment Management, 2009
25 Pages Posted: 15 Aug 2008 Last revised: 1 Mar 2009
Date Written: May 7, 2008
Using monthly data from 1992-2006, we show the value premium in Asia ex Japan is positively related to the cross-sectional dispersion of four common value ratios. The book-to-price and cash flow-to-price spreads exhibit the strongest relationship. Typical month-to-month variation in these two value spreads is often associated with a 0.4-1.0% per annum change in the value premium. Short-side positions are typically solely responsible for the positive relationship, particularly in recent years. Our results provide out of sample support for previous findings for the US market, but cast doubt on whether mean reversion alone can explain the observed value premium-spread relationship.
Keywords: value spread, value premium, market timing, Asia
JEL Classification: G11
Suggested Citation: Suggested Citation