What Drives the Value Premium? Risk versus Mispricing: Evidence from International Markets

Journal Of Investment Management (JOIM), Fourth Quarter 2013

Posted: 15 Nov 2014

See all articles by Denis B. Chaves

Denis B. Chaves

The Vanguard Group, Inc.

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Vitali Kalesnik

Research Affiliates LLC

Joseph (Yoseop) Shim

Research Affiliates, LLC

Date Written: May 21, 2014

Abstract

Value stocks outperform growth stocks. The academic literature provides two competing interpretations on what drives the value premium: exposure to risk factors or mispricing of securities. Existing empirical studies, which are largely based on U.S. data, have not conclusively rejected one theory in support of the other. Up to this point, large scale studies based on multiple countries have not been conducted. Past studies also employ data which end before 2000 and do not cover the tech bubble, the housing bubble, the global financial crisis and the European debt crisis, when the relative performance of value stocks was extremely volatile. Applying Fama and MacBeth (1973) two-stage cross-sectional regression and Daniel and Titman (1997) double-sorted portfolio methods to 30 years of cross sectional data from 23 developed countries, we find evidence that the value premium is driven by mispricing.

Keywords: Value premium, mispricing, risk, value, growth, book-to-market ratio, beta, HML

JEL Classification: G00

Suggested Citation

Chaves, Denis Biangolino and Hsu, Jason C. and Kalesnik, Vitali and Shim, Joseph (Yoseop), What Drives the Value Premium? Risk versus Mispricing: Evidence from International Markets (May 21, 2014). Journal Of Investment Management (JOIM), Fourth Quarter 2013. Available at SSRN: https://ssrn.com/abstract=2439902

Denis Biangolino Chaves (Contact Author)

The Vanguard Group, Inc. ( email )

100 Vanguard Blvd
Malvern, PA 19355
United States

Jason C. Hsu

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Vitali Kalesnik

Research Affiliates LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8717 (Phone)
949-325-8917 (Fax)

HOME PAGE: http://researchaffiliates.com/index.htm

Joseph (Yoseop) Shim

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States
949-325-8723 (Phone)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
555
PlumX Metrics