Can Recent Risk-based Explanations Explain the Value Premium?

Phalippou, Ludovic (2007) Can Recent Risk-based Explanations Explain the Value Premium? Review of Finance, 11 (2). pp. 143-166.

Abstract

This paper shows that some of the most prominent risk-based theories offered as explanation for the value premium are at odds with data. The models proposed by Fama and French (1993), Lettau and Ludvingson (2001), Campbell and Vuolteenaho (2004), and Yogo (2006) can capture the cross-section of returns of portfolios sorted on book-to-market ratio and size, but not of portfolios sorted on book-to market ratio and institutional ownership. These models generate economically large pricing errors in all the institutional ownership quintiles and each statistical test indicates that these pricing errors are significant. More generally, these results show that a minor alteration of the test assets can lead to a dramatically different answer regarding the validity of a given asset pricing model.

Item Type: Article
Keywords: Behavioral Finance, Institutional Ownership, Value Premium, finance
Subject(s): Finance
Date Deposited: 31 May 2012 17:20
Last Modified: 02 Mar 2017 11:30
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3809

Actions (login required)

Edit View Edit View