Value Return Predictability Across Asset Classes and Commonalities in Risk Premia

80 Pages Posted: 17 Oct 2017 Last revised: 23 Jun 2018

Fahiz Baba Yara

New University of Lisbon - Nova School of Business and Economics

Martijn Boons

New University of Lisbon - Nova School of Business and Economics

Andrea Tamoni

London School of Economics & Political Science (LSE)

Date Written: June 18, 2018

Abstract

We show that returns to value strategies in individual equities, currencies, global stock indexes, global government bonds, and commodities are predictable by the value spread. This fact is at odds with models that exclusively generate a value premium in equities. Common and asset-class-specific components of the value spread contribute equally to this predictability. We argue that common variation in value premia is consistent with rationally time-varying expected returns, most importantly because (i) common value is closely associated with standard proxies for risk premia, such as the dividend yield, intermediary leverage and illiquidity, and (ii) value premia are globally high in bad times. In contrast, expected returns to momentum strategies are largely unrelated to standard proxies for risk premia, and, if anything, low in bad times.

Keywords: Value Premium, Value Spread Predictability, Stocks, Bonds, Currencies, Commodities

JEL Classification: E31, E43, E44, E52, E63, G12

Suggested Citation

Baba Yara, Fahiz and Boons, Martijn and Tamoni, Andrea, Value Return Predictability Across Asset Classes and Commonalities in Risk Premia (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=3054017 or http://dx.doi.org/10.2139/ssrn.3054017

Fahiz Baba Yara

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Martijn Boons

New University of Lisbon - Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

Andrea Tamoni (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
02079557303 (Phone)

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