The Value Premium and Time-Varying Volatility

Journal of Business Finance and Accounting, 2009, 36, 9-10, 1252–1272

26 Pages Posted: 2 May 2007 Last revised: 10 Nov 2015

See all articles by Xiafei Li

Xiafei Li

Nottingham University Business School

Chris Brooks

University of Reading - ICMA Centre

Joëlle Miffre

Audencia Nantes School of Management; Audencia Business School

Multiple version iconThere are 2 versions of this paper

Date Written: March 13, 2009

Abstract

Numerous studies have documented the failure of the static and conditional capital asset pricing models to explain the difference in returns between value and growth stocks. This paper examines the post-1963 value premium by employing a model that captures the time-varying total risk of the value-minus-growth portfolios. Our results show that the time-series of value premia is strongly and positively correlated with its volatility. This conclusion is robust to the criterion used to sort stocks into value and growth portfolios and to the country under review (U.S. and U.K.). Our paper therefore adds to the weight of evidence on the possible role of idiosyncratic risk in explaining equity returns.

Keywords: Value premium, CAPM, GJR-GARCH(1,1)-M, Conditional unsystematic risk

JEL Classification: G12, G14

Suggested Citation

Li, Xiafei and Brooks, Chris and Miffre, Joelle, The Value Premium and Time-Varying Volatility (March 13, 2009). Journal of Business Finance and Accounting, 2009, 36, 9-10, 1252–1272. Available at SSRN: https://ssrn.com/abstract=983905 or http://dx.doi.org/10.2139/ssrn.983905

Xiafei Li

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 (0)115 9518603 (Phone)

Chris Brooks (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44 118 931 82 39 (Phone)
+44 118 931 47 41 (Fax)

Joelle Miffre

Audencia Nantes School of Management ( email )

8 route de la Jonelière, BP 31222
Nantes Cedex 3, Cedex 3 44312
France

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

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