Expected returns on value, growth, and HML

Oleg Rytchkov

Journal of Empirical Finance, 2010, vol. 17, issue 4, 552-565

Abstract: In this paper, I analyze the predictability of returns on value and growth portfolios and examine time variation of the expected value premium. As a primary tool, I use the filtering technique, which accounts for time variation in expected cash flows and explicitly exploits the constraints imposed by the present value relation. I demonstrate that returns on value and growth portfolios are predictable, and the predictability is stronger for growth stocks. Applying the filtering technique to the HML portfolio, I build a novel powerful forecaster for the value premium. The new forecaster appears to be only weakly related to business cycle variables.

Keywords: Asset; pricing; Value; premium; Predictability; Kalman; filter (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:17:y:2010:i:4:p:552-565

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