Economics, Econometrics and Finance
4 years ago

Value stocks thrive in uncertainty, leading to bigger returns in tough times.

1 view
National Bureau of Economic Research
Cash-Flow Risk, Discount Risk, and the Value Premium
Tano Santos, Pietro Veronesi

Paper Summary

The study shows that value stocks have higher cash-flow risk, leading to a larger value premium in tough times. The traditional CAPM model doesn't work because of market portfolio restrictions. The value premium changes over time, explaining why conditional CAPM and a HML factor perform better than unconditional CAPM.

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