What does the value premium tell us about the term structure of equity returns?
Topic: What does the value premium tell us about the term structure of equity returns?
Time: Wednesday , 2011-09-14 13:00-08:00
Venue:
Speaker: ,
Affiliations: University of British Columbia
Topic:
What does the value premium tell us about the term structure of equity returns?
Time:
星期四,2011-09-14 12:00-13:00
Venue:
Speaker:
Huafeng (Jason) Chen

What does the value premium tell us about the term structure of equity returns?

Abstract
Conventional wisdom holds that growth stocks (low book-to-market stocks) have higher future cash-flow growth rates and longer durations than value stocks, and that the value premium implies a downward sloping equity term structure. Empirical evidence suggests the opposite. Earnings of growth stocks grow more slowly than those of value stocks for both rebalanced and buy-and-hold portfolios. I point out survivorship and static biases in common empirical procedures. Growth stocks behave like short-duration assets: their prices are less sensitive to changes in discount rates, and their discount rates are more volatile. The value premium implies an upward sloping equity term structure. I argue that my results help explain a number of puzzling facts.

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