Value Uncertainty

Turan G. Bali (), Luca Del Viva (), Menatalla El Hefnawy () and Lenos Trigeorgis ()
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Turan G. Bali: Department of Business Administration, McDonough School of Business, Georgetown University, Washington, DC 20057
Luca Del Viva: Department of Economics, Finance and Accounting, ESADE Business School, Ramon Llull University, 08171 Barcelona, Spain
Menatalla El Hefnawy: CUNEF Universidad, 28040 Madrid, Spain
Lenos Trigeorgis: Department of Management, Durham University Business School, Durham DH1 3LB, United Kingdom

Management Science, 2024, vol. 70, issue 7, 4548-4563

Abstract: We examine how time-series volatility of book-to-market (UNC) is priced in equity returns and the relative contributions of its book volatility (variations in earnings and book value) and market volatility components (shocks in required return). UNC captures valuation risk, so stocks with high valuation risk earn higher return. An investment strategy long in high-UNC firms and short in low-UNC firms generates 8.5% annual risk-adjusted return. UNC valuation risk premium is driven by outperformance of high-UNC firms facing higher information risk and is not explained by established risk factors and firm characteristics.

Keywords: book-to-market; uncertainty; valuation risk; equity returns (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:7:p:4548-4563

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