Capturing the Value Premium - Global Evidence from a Fair Value-Based Investment Strategy

This paper examines the risk premium of value stocks within a global investment strategy framework. We test whether absolute or relative mis-pricing is better suited to capturing the global value premium by using fair value-based net asset values (NAVs) as our proxies for fundamental value. We find that investing in the most under-priced stocks relative to the average ratio of price to fundamental value in a country is the key to achieving superior risk-adjusted returns. The annualized excess return of the global value portfolio sorted according to relative mis-pricing is 10.0%, and remains significant after controlling for common risk factors