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Value Timing: Risk and Return Across Asset Classes

65 Pages Posted: 17 Oct 2017 Last revised: 23 Nov 2017

Fahiz M. 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: November 21, 2017

Abstract

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

Baba Yara, Fahiz M. and Boons, Martijn and Tamoni, Andrea, Value Timing: Risk and Return Across Asset Classes (November 21, 2017). Available at SSRN: https://ssrn.com/abstract=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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