On Value Premium, Part II: The Explanations

Chi F. Ling, Simon G. M. Koo

Department of Industrial Engineering and Operations Research, Columbia University, New York, USA.
Department of Mathematics and Computer Science, University of San Diego, San Diego, USA.

DOI: 10.4236/jmf.2012.21008                

Abstract

Much academic work has been done to prove that value premium exists. The center of debate however, lies on the reason for its existence. This paper will be a survey on different explanations to the existence of value premium which includes risk premium for value stocks, judgmental bias and agency costs, data mining, survivorship bias and company size’s premium. Among all, judgmental bias and agency costs comes out to be the one suffered from least counter-arguments.

Keywords

Value Investing; Value Premium; Arbitrage; Value Stocks; Glamour Stocks

Conflicts of Interest

The authors declare no conflicts of interest.

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