Value and Momentum from Investors' Perspective: Evidence from Professionals' Risk-Ratings

70 Pages Posted: 22 May 2020 Last revised: 15 Mar 2021

See all articles by Christoph Merkle

Christoph Merkle

Aarhus University

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management

Date Written: January 29, 2021

Abstract

We conduct a controlled experiment with financial professionals to examine more directly whether value and momentum reflect risk factors or mispricing. By eliciting their risk perceptions and return expectations for company stocks, we identify what constitutes a risky investment from the point of investors. Contrary to the risk factor hypothesis, value and momentum stocks are regarded as less risky. However, other factors, such as size and beta, fall in line with their traditional interpretation as risk factors. Consistent with empirical findings, we observe higher return expectations for momentum stocks, raising questions on analysts believing in a risk-return trade-off.

Keywords: Value, Momentum, Risk factor, Anomaly, Financial Analysts

JEL Classification: D84, G11, G12, G40

Suggested Citation

Merkle, Christoph and Sextroh, Christoph J., Value and Momentum from Investors' Perspective: Evidence from Professionals' Risk-Ratings (January 29, 2021). Journal of Empirical Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3590160 or http://dx.doi.org/10.2139/ssrn.3590160

Christoph Merkle (Contact Author)

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

HOME PAGE: http://christophmerkle.github.io/

Christoph J. Sextroh

Tilburg University - Tilburg School of Economics and Management ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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