The Value Premium

Posted: 2 Jan 2004

See all articles by Lu Zhang

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

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The value anomaly arises naturally within the neoclassic, rational expectations framework with competitive equilibrium. Costly reversibility and countercyclical price of risk cause assets in place to be much harder to adjust downward, and hence riskier, than growth options, especially in bad times when the price of risk is high. By linking risk and expected return to economic primitives, such as tastes and technology, the model generates many empirical regularities in the cross-section of returns; it also yields a rich array of new refutable hypotheses that can provide fresh directions for future empirical research.

Keywords: The Value Premium, Corporate Investment, Assets-in-Place, Growth Option, Costly Reversibility, Rational Expectations Economics

JEL Classification: G1

Suggested Citation

Zhang, Lu, The Value Premium. Journal of Finance, Forthcoming, Available at SSRN:

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

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