Is There a Value Premium Among Large Stocks?

40 Pages Posted: 17 May 2014 Last revised: 22 Sep 2015

See all articles by Sandro C. Andrade

Sandro C. Andrade

University of Miami - Department of Finance

Vidhi Chhaochharia

University of Miami - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

Fama and French (2012) find no significant global value premium among large stocks. Two simple departures from their methodology restore such premium: sorting stocks on price-to-earnings rather than price-to-book ratios, and using global rather than regional value breakpoints. The resulting global value premium among large stocks, measured as the return spread between top 30% and bottom 30% stocks, increases from 17 (t-stat=1.09) to 64 (t-stat=2.61) basis points per month. Using price-to-earnings computed from earnings estimates rather than historical earnings further sharpens the global value effect among large stocks. Not confined to small stocks, the value premium remains a highly economically significant phenomenon. Because valuation ratios are not interchangeable, researchers should consider looking beyond price-to-book when studying, or controlling for, the value effect.

Keywords: value premium, valuation ratios, global investing

Suggested Citation

Andrade, Sandro C. and Chhaochharia, Vidhi, Is There a Value Premium Among Large Stocks? (September 2015). Available at SSRN: https://ssrn.com/abstract=2437567 or http://dx.doi.org/10.2139/ssrn.2437567

Sandro C. Andrade (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

HOME PAGE: http://moya.bus.miami.edu/~sandrade/

Vidhi Chhaochharia

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
96
Abstract Views
662
rank
69,008
PlumX Metrics