Is the Value Premium a Puzzle?
نویسنده
چکیده
This paper provides an economic explanation of the value premium, differences in price/dividend ratios of value and growth assets and variance-covariance structure of their realized returns within the long-run risks model of Bansal and Yaron (2004). Consistent with time-series properties of observed cash-flow data, value firms exhibit higher exposure to low-frequency fluctuations in aggregate consumption than growth firms do. This is the key input that allows the model to justify the magnitude of the historical value premium. Furthermore, heterogeneity in systematic risks across firms helps account for the violation of the CAPM and C-CAPM, resolving the puzzle. ∗The Wharton School at the University of Pennsylvania; email: [email protected]. I would like to thank Ravi Bansal, David A. Hsieh, Albert S. ”Pete” Kyle, and George Tauchen for their invaluable comments, encouragement and guidance. All mistakes are my own. 10:30 am – 12:00 pm, Room: JKP-104 FRIDAY, September 22, 2006 USC FBE FINANCE SEMINAR presented by Dana Kiku
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