What Drives the Value Premium?: The Role of Asset Risk and Leverage

• 成果类型: Article
• 署名作者: Choi, Jaewon
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hht040
• 发表日期: 2013
• 页码: 2845
• 关键词: cross-section; conditional capm; returns; performance; INVESTMENT; credit; stocks; cost

摘要

This paper shows empirically how asset risk and financial leverage interact to explain the equity risk dynamics of value versus growth stocks. During economic downturns, the asset betas and leverage of value firms increase, contributing to a sharp rise in equity betas. Asset betas of growth firms are much less sensitive to economic conditions, and, consistent with the tradeoff theory of capital structure, growth firms are also less levered, contributing to the relative stability of their equity betas. By incorporating instruments that better capture beta dynamics, I show that the interactions of conditional betas with the market risk premium and volatility explain approximately 40% of the unconditional value premium.