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Where Is the Risk in Value? Evidence From a Market-to-Book Decomposition

Golubov, A. and Konstantinidi, T. (2019). Where Is the Risk in Value? Evidence From a Market-to-Book Decomposition. The Journal of Finance, 74(6), pp. 3135-3186. doi: 10.1111/jofi.12836

Abstract

We study the value premium using a multiples-based market-to-book decomposition of RhodesKropf, 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 regressions. Existing results linking market-to-book to operating leverage, duration, exposure to investment-specific technology shocks, and analysts’ risk ratings derive from the unpriced value-to-book component. In contrast, results on expectation errors, limits to arbitrage, and certain types of cash flow risk and consumption risk exposure are due to the market-to-value component. Overall, our evidence casts doubt on several value premium theories.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Golubov, A. and Konstantinidi, T. (2018). Where Is the Risk in Value? Evidence From a Market-to-Book Decomposition. The Journal of Finance, which has been published in final form at http://onlinelibrary.wiley.com/journal/10.1111/10.1111/jofi.12836. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Publisher Keywords: Value Premium, Market-to-Book Decomposition, Risk Exposure, Expectation Errors, Limits to Arbitrage
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
Date available in CRO: 04 Feb 2019 10:46
Date deposited: 4 February 2019
Date of acceptance: 18 December 2018
Date of first online publication: 9 August 2019
URI: https://openaccess.city.ac.uk/id/eprint/21414
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