Price of Value and the Divergence Factor

46 Pages Posted: 1 Mar 2017 Last revised: 9 May 2018

See all articles by Lin William Cong

Lin William Cong

University of Chicago - Booth School of Business

Nathan George

University of California, Berkeley - Fisher Center for Real Estate and Urban Economics

Guojun Wang

Tongji University

Date Written: April 24, 2018

Abstract

Price of Value, measured by the ratio of market price to accounting-based valuation, subsumes the power of book-to-market and to a large extent of various quality measures in predicting the cross-section of average returns. Price-of-value strategies generate significantly higher returns than traditional value and other anomaly strategies even after common factors adjustments, and provides natural hedge against momentum strategies. A four factor model using the Market, Small-Minus-Big, Momentum, and Price-Value Divergence Factor improves over alternative factor models.

Keywords: Factor models, asset pricing, anomalies, market efficiency, value investing

Suggested Citation

Cong, Lin and George, Nathan and Wang, Guojun, Price of Value and the Divergence Factor (April 24, 2018). Available at SSRN: https://ssrn.com/abstract=2925577 or http://dx.doi.org/10.2139/ssrn.2925577

Lin Cong (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Nathan George

University of California, Berkeley - Fisher Center for Real Estate and Urban Economics ( email )

Haas School of Business
Berkeley, CA 94720-1900
United States

Guojun Wang

Tongji University ( email )

School of Economics and Management
1239 Siping Rd
Shanghai
China

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