The Puzzling Counter-Cyclicality of the Value Premium: Empirics and a Theory

Maurizio Montone

Research output: Contribution to conferencePaperAcademic

Abstract

I propose a simple consumption model with mental accounting in which investments have both a fundamental and a speculative motive. The model predicts that speculative assets should have a lower book-to-market ratio, exhibit a negative alpha and yield lower returns in bad economic times. Using post-war data on U.S. stocks, I find evidence that supports these predictions. In particular, I show that that high book-to-market (value) stocks have better insurance properties than low book-to-market (growth) stocks despite earning a persistent premium. As such, the findings are at odds with the predictions of standard finance models.
Original languageEnglish
Publication statusPublished - 2014

Fingerprint

Dive into the research topics of 'The Puzzling Counter-Cyclicality of the Value Premium: Empirics and a Theory'. Together they form a unique fingerprint.

Cite this