The Expected Value Premium

23 Pages Posted: 9 Apr 2007

See all articles by Long Chen

Long Chen

Cheung Kong Graduate School of Business; Luohan Academy

Ralitsa Petkova

Case Western Reserve University - Department of Banking & Finance

Lu Zhang

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

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Abstract

Fama and French (2002) estimate the equity premium using dividend growth rates to measure expected rates of capital gain. We apply their method to study the value premium. From 1945 to 2005, the expected value premium is on average 6.1% per annum, consisting of an expected dividend-growth component of 4.4% and an expected dividend-price-ratio component of 1.7%. Unlike the equity premium, the value premium has been largely stable in the last half century.

Keywords: The Value Strategy, Expected Returns, Dividend Growth, Dividend Price Ratio, Capital Gains

JEL Classification: G12, G14

Suggested Citation

Chen, Long and Chen, Long and Petkova, Ralitsa and Zhang, Lu, The Expected Value Premium. Forthcoming, Journal of Financial Economics (JFE), Available at SSRN: https://ssrn.com/abstract=978746

Long Chen

Cheung Kong Graduate School of Business ( email )

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Luohan Academy ( email )

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Ralitsa Petkova

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

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Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

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National Bureau of Economic Research (NBER)

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