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Transaction costs and value premium

Author

Listed:
  • Agarwal, Vikas
  • Wang, Lingling

Abstract

Value premium has been well documented in the finance literature. This paper empirically examines whether the value strategy of buying value stocks and selling growth stocks is profitable after controlling for transaction costs. Using the limited dependent variable estimate of transaction costs as in Lesmond, Ogden, and Trzcinka (1999), we find that value premium disappears as implementation of a value strategy involves substantial transaction costs. Our results after controlling for size and liquidity are robust to different ways of categorizing value and growth stocks used in the existing literature (Lakonishok, Shleifer, and Vishny (1994), and Fama and French (1993, 2006)) and to different methods of measuring transaction costs.

Suggested Citation

  • Agarwal, Vikas & Wang, Lingling, 2007. "Transaction costs and value premium," CFR Working Papers 07-06, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:0706
    as

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    File URL: https://www.econstor.eu/bitstream/10419/57763/1/70301417X.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Transaction costs; value stocks; growth stocks; value premium; liquidity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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