Business, Management and Accounting
3 years ago

Unveiling the Truth: Value Stocks Riskier Than Growth, Driving Market Premium

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The Two Sides of Value Premium: Decomposing the Value Premium
Hanzhi Xu

Paper Summary

The value premium in stocks is caused by both risk and behavioral factors. Value stocks are riskier and have lower forecasted earnings growth, while growth stocks are less risky with higher forecasted earnings growth. Even when accounting for risk levels, the value premium still exists. Changes in valuation ratios due to earnings surprises contribute to the value premium.

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