The Expected Value Premium

@inproceedings{Chen2006TheEV,
  title={The Expected Value Premium},
  author={Long Chen and Ralitsa Petkova and Lu Zhang},
  year={2006}
}
Fama and French (2002) estimate the equity premium using dividend growth rates to measure the expected rate of capital gain. We use similar methods to study the value premium. From 1941 to 2002, the expected HML return is on average 5.1% per annum, consisting of an expected-dividend-growth component of 3.5% and an expected-dividend-to-price component of 1.6%. The ex-ante HML return is also countercyclical: a positive, one-standard-deviation shock to real consumption growth rate lowers this… CONTINUE READING

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