Is the value spread a useful predictor of returns?
No. Two related variables, the book-to-market spread (the book-to-market of value stocks minus the book-to-market of growth stocks), and the market-to-book spread (the market-to-book of growth stocks minus the market-to-book of value stocks) predict returns but with opposite signs. The value spread mixes the cyclical variations of the book-to-market and market-to-book spreads, and appears much less useful in predicting returns. Our evidence casts doubt on Campbell and Vuolteenaho [2004. Bad beta, good beta. American Economic Review 94(5), 1249-1275] because their conclusion relies critically on using the value spread as a predictor of aggregate stock returns.
Year of publication: |
2008
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Authors: | Liu, Naiping ; Zhang, Lu |
Published in: |
Journal of Financial Markets. - Elsevier, ISSN 1386-4181. - Vol. 11.2008, 3, p. 199-227
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Publisher: |
Elsevier |
Saved in:
Online Resource
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