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Loews Philadelphia, Commonwealth Hall D
American Finance Association
Market Risk Factors
Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM
- Chair: Christian Opp, University of Pennsylvania
Where is the Risk in Value? Evidence From a Market-to-Book Decomposition
AbstractWe study the value premium using a multiples-based market-to-book decomposition of Rhodes-Kropf, Robinson and Viswanathan (2005). The market-to-value component drives all of the value strategy return, while the value-to-book component exhibits no return predictability in either portfolio sorts or firm-level return regressions. Existing results linking market-to-book to long-run consumption risk, cashflow risk, exposure to investment-specific technology shocks, operating leverage, duration, and analysts’ risk ratings derive predominantly from the unpriced value-to-book component. In contrast, results on expectation errors and limits to arbitrage emanate from the market-to-value component. Overall, our evidence casts doubt on most existing risk-based explanations for the value premium.
What Matters to Individual Investors? Evidence from the Horse's Mouth
AbstractWe survey a representative sample of U.S. individuals about how well leading academic theories describe their financial beliefs and decisions. We find substantial support for many factors hypothesized to affect portfolio equity share, particularly background risk, investment horizon, rare disasters, transactional factors, and fixed costs of stock market participation. Individuals tend to believe that past mutual fund performance is a good signal of stock-picking skill, actively managed funds do not suffer from diseconomies of scale, value stocks are safer and do not have higher expected returns, and high-momentum stocks are riskier and do have higher expected returns.
University of Toronto
Juhani T. Linnainmaa,
University of Southern California
- G1 - General Financial Markets