Value Return Predictability Across Asset Classes and Commonalities in Risk Premia

82 Pages Posted: 17 Oct 2017 Last revised: 21 Nov 2019

See all articles by Fahiz Baba Yara

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

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: November 13, 2019

Abstract

We show that returns to value strategies in individual equities, industries, commodities, currencies, global government bonds, and global stock indexes are predictable in the time series by their respective value spreads. In all these asset classes, expected value returns vary by at least as much as their unconditional level. A single common component of the value spreads captures about two-thirds of value return predictability and the remainder is asset-class-specifc. We argue that common variation in value premia is consistent with rationally time-varying expected returns, 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.

Keywords: Value Premium, Value Spread, Global Asset Pricing, Return Predictability, Alternative Assets, Common and Asset-Class-Specific Value

JEL Classification: E44, G11, G12

Suggested Citation

Baba Yara, Fahiz and Boons, Martijn and Tamoni, Andrea, Value Return Predictability Across Asset Classes and Commonalities in Risk Premia (November 13, 2019). 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)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

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