Two Kinds of Value Premiums

Daehwan Kim

International Economic Journal, 2012, vol. 26, issue 2, 281-299

Abstract: We examined the return co-movement of popular value-oriented investment strategies inside and outside equity. There are two distinct groups among the strategies examined in this study. The returns of strategies within a group move together, while the returns of strategies belonging to different groups do not. In addition, the two groups have very different exposures to conventional equity risk factors. We interpret one of the two groups as being related to forward bias, and the other as being related to contrarian profits. To illustrate the usefulness of this grouping, we considered two applications. In the first application, an effective way to achieve value diversification requires selecting value strategies from both groups. In the second application, an effective value timing method requires excluding one group from the analysis.

Date: 2012
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DOI: 10.1080/10168737.2012.688521

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