Value versus Growth: Time-Varying Expected Stock Returns

Huseyin Gulen, Yuhang Xing and Lu Zhang (zhanglu@fisher.osu.edu)

No 15993, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Is the value premium predictable? We study time-variations of the expected value premium using a two-state Markov switching model. We find that when conditional volatilities are high, the expected excess returns of value stocks are more sensitive to aggregate economic conditions than the expected excess returns of growth stocks. As a result, the expected value premium is time-varying: it spikes upward in the high-volatility state, only to decline more gradually in the ensuring periods. However, out-of-sample predictability of the value premium is close to nonexistent.

JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2010-05
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Huseyin Gulen & Yuhang Xing & Lu Zhang, 2011. "Value versus Growth: Time‐Varying Expected Stock Returns," Financial Management, Financial Management Association International, vol. 40(2), pages 381-407, 06.

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