The Value Spread

Randolph B. Cohen, Christopher Polk and Tuomo Vuolteenaho

No 8242, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20%) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2001-04
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as Randolph B. Cohen & Christopher Polk & Tuomo Vuolteenaho, 2003. "The Value Spread," Journal of Finance, American Finance Association, vol. 58(2), pages 609-642, 04.

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