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Do Invesrtors Capture the Value Premium?

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  • Todd Houge
  • Tim Lughran

Abstract

Do investors realize higher returns by investing in value stocks instead of gorwth stocks? Examination of a sample of equity indexes, mutual funds, and large‐cap stocks reveals no evidence that value firms have earned higher returns than growth firms. The value premium reported in the literarture is historically strongest for small‐capitalization firms, yea average annual rerturns for small‐cap equity funds are 14.10% for value funds compared to 14.52% for growth funds. Despite dramatic increases in mutual fund expense ratios from 1965 to 2001, fee differences across style funds cannot explain the absence of a value premium.

Suggested Citation

  • Todd Houge & Tim Lughran, 2006. "Do Invesrtors Capture the Value Premium?," Financial Management, Financial Management Association International, vol. 35(2), pages 5-19, June.
    • Handle: RePEc:bla:finmgt:v:35:y:2006:i:2:p:5-19
    DOI: 10.1111/j.1755-053X.2006.tb00139.x
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    References listed on IDEAS

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    Cited by:

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    2. Ahmad, Tanveer & Shahzad, Syed Jawad Hussain & Rehman, Mobeen ur, 2014. "Risk or Sentiment: Value and Size Premium under Terrorism," MPRA Paper 60027, University Library of Munich, Germany.

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