Macroeconomics and the value premium

Brian Jacobsen () and Wai Lee
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Brian Jacobsen: Wells Fargo Asset Management
Wai Lee: Wells Fargo Asset Management

Journal of Asset Management, 2021, vol. 22, issue 4, No 1, 252 pages

Abstract: Abstract The value premium as measured by the “high minus low” returns from the Fama and French database has been negative or statistically indistinguishable from zero for the past decade. The value premium is highly variable and non-normally distributed, making traditional statistical tests like t tests or regressions difficult to implement or misleading. The authors hypothesize that the Great Moderation—a period of generally lower variability in economic growth and inflation—has not been great for the value premium. To demonstrate this, the authors use a variety of nonparametric techniques and panel analysis to show that the value premium was generally challenged by the Great Moderation. This is consistent with the idea that as a risk premium, if risk is lower, the premium should also be lower.

Keywords: Value premium; Great Moderation; Risk premium; Nonparametric; Panel autoregressive distributed lag (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1057/s41260-020-00200-2

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