Beta, Value, and Growth

33 Pages Posted: 11 Dec 2011 Last revised: 22 Jun 2019

Date Written: June 1, 2019


I propose a Capital Asset Pricing Model in which investor demand exhibits a speculative component. In equilibrium, I find that investors hold part of their wealth in overpriced assets, which generates predictable patterns for the returns on value and growth stocks. Consistent with the model predictions, I show that simple trading strategies on stocks with extreme price-to-book ratios yield positive and robust abnormal returns in the period from 1926 to 2017, and that the returns on growth stocks are insensitive to business cycle fluctuations. The results suggest that the value premium is too large to be explained by risk alone.

Keywords: Value premium; Speculative demand; Beta; Business cycle.

JEL Classification: G11, G12, G14

Suggested Citation

Montone, Maurizio, Beta, Value, and Growth (June 1, 2019). Available at SSRN: or

Maurizio Montone (Contact Author)

Utrecht University ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC

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