Value Versus Growth: Time-Varying Expected Stock Returns

36 Pages Posted: 17 May 2010 Last revised: 14 Sep 2010

See all articles by Huseyin Gulen

Huseyin Gulen

Purdue University - Krannert School of Management

Yuhang Xing

Rice University

Lu Zhang, 张橹

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2010

Abstract

Is the value premium predictable? We study time-variations of the expected value premium using a two-state Markov switching model. We find that when conditional volatilities are high, the expected excess returns of value stocks are more sensitive to aggregate economic conditions than the expected excess returns of growth stocks. As a result, the expected value premium is time-varying: it spikes upward in the high-volatility state, only to decline more gradually in the ensuring periods. However, out-of-sample predictability of the value premium is close to nonexistent.

Suggested Citation

Gulen, Huseyin and Xing, Yuhang and Zhang, Lu, Value Versus Growth: Time-Varying Expected Stock Returns (May 2010). NBER Working Paper No. w15993. Available at SSRN: https://ssrn.com/abstract=1607503

Huseyin Gulen (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Yuhang Xing

Rice University ( email )

6100 South Main Street
Houston, TX 7705-1892
United States

Lu Zhang

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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