TY - CONF
T1 - The Puzzling Counter-Cyclicality of the Value Premium: Empirics and a Theory
AU - Montone, Maurizio
N1 - Presented at the Erasmus School of Economics, the University of Cassino, the Center for Studies in Economics and Finance, the London School of Economics, the University of Miami and Indiana University.
PY - 2014
Y1 - 2014
N2 - 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.
AB - 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.
UR - http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1970109
M3 - Paper
ER -