Do Investors Capture the Value Premium?
26 Pages Posted: 30 Jan 2006
Date Written: January 27, 2006
Do investors realize higher returns by investing in value stocks instead of growth stocks? Examination of a sample of equity indexes, mutual funds, and large-cap stocks reveals no evidence that value firms have earned higher returns than growth firms. The value premium reported in the literature is historically strongest for small-capitalization firms, yet average annual returns for small-cap equity funds are 14.10% for value funds compared to 14.52% for growth funds. Despite dramatic increases in mutual fund expense ratios from 1965 to 2001, fee differences across style funds cannot explain the absence of a value premium.
Keywords: value premium, mutual funds, style, index returns, expense ratios
JEL Classification: G12, G14
Suggested Citation: Suggested Citation