The Expected Value Premium
23 Pages Posted: 9 Apr 2007
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: Suggested Citation