Value Timing: Risk and Return Across Asset Classes
65 Pages Posted: 17 Oct 2017 Last revised: 23 Nov 2017
Date Written: November 21, 2017
Returns to value strategies in individual equities, commodities, currencies, global government bonds and stock indexes are predictable by the value spread. The value spread captures the strength of the value signal in the long relative to the short portfolio of a value strategy. We show that common and asset-class-specific components of the value spread contribute equally to this predictability. Return variation due to common value is closely associated to standard predictors of risk premia, but is at odds with models that exclusively generate a value premium in equities. Return variation due to specific value presents another challenge for asset pricing models. A number of value timing and rotation strategies shows that investors can benefit from the value spread in real-time.
Keywords: Value Premium, Value Spread Predictability, Stocks, Bonds, Currencies, Commodities
JEL Classification: E31, E43, E44, E52, E63, G12
Suggested Citation: Suggested Citation