Time-Variation in the Value Premium and the CAPM: Evidence from European Markets

38 Pages Posted: 5 Dec 2006 Last revised: 27 Nov 2007

See all articles by Spyros I. Spyrou

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance

Konstantinos Kassimatis

Athens University of Economics and Business - Department of Business Administration

Date Written: December 1, 2006

Abstract

Many previous studies document a robust premium for value vs. growth stocks in international markets. We show that this premium is driven by few years where HML returns are high and significant. For instance, for twelve European markets the HML return is statistically significant, on average, approximately 36% of the years and for these statistically significant years the average monthly HML return is 2.24%. For the rest of the years (i.e. about 64% of the time) the average HML monthly return is only 0.54%. We also find that historical betas for value and growth portfolios vary significantly over time, change between good and bad economic conditions, and that value portfolio betas are not always smaller than growth portfolio betas for the majority of the sample markets. Finally, when time-variation in systematic risk is addressed we cannot reject the zero-intercept hypothesis; i.e portfolio returns appear consistent with the CAPM.

Keywords: Value Premium, CAPM, Time-Varying Risk

JEL Classification: G12, G14, G15

Suggested Citation

Spyrou, Spyros I. and Kassimatis, Konstantinos, Time-Variation in the Value Premium and the CAPM: Evidence from European Markets (December 1, 2006). Available at SSRN: https://ssrn.com/abstract=949457 or http://dx.doi.org/10.2139/ssrn.949457

Spyros I. Spyrou (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Konstantinos Kassimatis

Athens University of Economics and Business - Department of Business Administration ( email )

Athens
Greece

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