Do Investors Capture the Value Premium?

26 Pages Posted: 30 Jan 2006

See all articles by Tim Loughran

Tim Loughran

University of Notre Dame

Todd Houge

University of Iowa

Multiple version iconThere are 2 versions of this paper

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

Loughran, Tim and Houge, Todd, Do Investors Capture the Value Premium? (January 27, 2006). Available at SSRN: or

Tim Loughran

University of Notre Dame ( email )

Department of Finance
245 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
574-631-8432 (Phone)
574-631-5255 (Fax)

Todd Houge (Contact Author)

University of Iowa ( email )

Henry B. Tippie College of Business
Department of Finance, S288 PBB
Iowa City, IA 52242-1994
United States
319-335-3754 (Phone)
319-335-3690 (Fax)


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