Did the value premium survive the subprime credit crisis?

Edward Lee, Norman Strong and Zhu, Zhenmei (Judy)

The British Accounting Review, 2014, vol. 46, issue 2, 166-178

Abstract: We provide evidence that value stocks significantly underperformed growth stocks during the subprime credit crisis, despite a positive value premium before the crisis. The reversal in the value premium concentrates in financially constrained firms, suggesting it was due to the adverse influence of the crisis rather than confounding effects. These findings are robust to alternative financial constraint proxies and asset pricing models. The observation that value stocks are vulnerable to losses during extreme downturns like the crisis is consistent with them being riskier than growth stocks. Our findings have implications for the academic debate on the underlying cause of the value premium and for investors on the profitability of value investing strategies.

Keywords: Subprime credit crisis; value premium; Financial constraints (search for similar items in EconPapers)
JEL-codes: G01 G14 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:bracre:v:46:y:2014:i:2:p:166-178

DOI: 10.1016/j.bar.2014.02.005

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