The value premium and expected business conditions

Chris Kirby

Finance Research Letters, 2019, vol. 30, issue C, 360-366

Abstract: Prior research finds no discernible relation between the realized value premium (the spread between the returns on value and growth stocks) and forecasts of real GDP growth produced by professional economists. This finding appears to be driven by an unmodeled structural break. During the post-break period, the relation between the realized value premium and the forecasts is positive and statistically significant, which points to a procyclical relation between the expected value premium and expected business conditions. The evidence suggests that the expected value premium becomes negative during periods when economic growth is expected to be either negative or relatively weak.

Keywords: Value stocks; Growth stocks; Return predictability; GDP Forecasts (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:30:y:2019:i:c:p:360-366

DOI: 10.1016/j.frl.2018.10.022

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