The Expected Value Premium

43 Pages Posted: 23 May 2006

See all articles by Long Chen

Long Chen

Cheung Kong Graduate School of Business

Ralitsa Petkova

Case Western Reserve University - Department of Banking & Finance

Lu Zhang, 张橹

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

Multiple version iconThere are 3 versions of this paper

Date Written: May 2006

Abstract

Fama and French (2002) estimate the equity premium using dividend growth rates to measure the expected rate of capital gain. We use similar methods to study the value premium. From 1941 to 2002, the expected HML return is on average 5.1% per annum, consisting of an expected-dividend-growth component of 3.5% and an expected-dividend-to-price component of 1.6%. The ex-ante HML return is also countercyclical: a positive, one-standard-deviation shock to real consumption growth rate lowers this premium by about 0.45%. Unlike the equity premium, there is only mixed evidence suggesting that the value premium has declined over time.

Suggested Citation

Chen, Long and Petkova, Ralitsa and Zhang, Lu, The Expected Value Premium (May 2006). NBER Working Paper No. w12183. Available at SSRN: https://ssrn.com/abstract=900089

Long Chen

Cheung Kong Graduate School of Business ( email )

Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China

Ralitsa Petkova

Case Western Reserve University - Department of Banking & Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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