The Value Premium

Author: LU ZHANG

Source: The Journal of Finance, Volume 60, Number 1, February 2005 , pp. 67-103(37)

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Abstract:

The value anomaly arises naturally in the neoclassical framework with rational expectations. Costly reversibility and countercyclical price of risk cause assets in place to be harder to reduce, and hence are riskier than growth options especially in bad times when the price of risk is high. By linking risk and expected returns to economic primitives, such as tastes and technology, my model generates many empirical regularities in the cross-section of returns; it also yields an array of new refutable hypotheses providing fresh directions for future empirical research.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1540-6261.2005.00725.x

Affiliations: 1: 1William E. Simon Graduate School of Business Administration, University of Rochester

Publication date: 2005-02-01