Value Premium Research Articles (Page 1)

This paper studies the impact of information processing and learning about expected future cashflows on the level and timing of risk premiums in the cross section of firms. Learning with information sources of different qualities endogenously generates value firms, growth firms, and a value premium in equilibrium. Furthermore, the learning model predicts an upward-sloping equity term structure for value firms and a flat equity term structure for growth firms. Using earnings, return, and news data on value and growth firms, we show that the predictions of the learning model are consistent with the data. This paper was accepted by Kay Giesecke, finance. Funding: Research support from Long-Term Investors@UniTo, the University of Neuchatel, and the University of Toronto is gratefully acknowledged. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.05922 .

This study aims to analyze the influence of profitability as proxied by Return on Equity (ROE), solvency as proxied by Debt to Equity Ratio (DER), and liquidity as proxied by Current Ratio (CR) on firm value as proxied by Price to Book Value (PBV) in the Indonesian food and beverage sector. The study focuses on the 2019-2023 period, a timeframe uniquely defined by the economic disruption of the COVID-19 pandemic and its initial recovery phase. The research method employed is a quantitative approach using multiple linear regression analysis. The sample consists of 10 companies listed on the Indonesia Stock Exchange (IDX), selected through a purposive sampling technique, resulting in 50 firm-year observations. The results indicate that both partially and simultaneously, the variables of profitability, solvency, and liquidity have a significant positive influence on firm value. This finding suggests that during a period of systemic crisis, the capital market places a valuation premium on companies that can demonstrate holistic and comprehensive signals of financial health. The novelty of this research lies in its contextualization of the dynamic role of financial ratios as crucial signals amidst an unprecedented economic shock. This study provides an empirical explanation for why investors prioritized stability and resilience, thereby reconciling conflicting findings in prior literature regarding the impact of liquidity on firm value.

Purpose This study examines whether environmental, social and governance (ESG) scores influence portfolio performance, risk and market valuation in the Indian equity market, specifically exploring whether higher ESG scores deliver a performance advantage or valuation premium. Given the efforts of SEBI and industry bodies to enable a common reporting standard from FY2024-25, understanding the impact of ESG in India is particularly pertinent, yet underexplored. Design/methodology/approach Using data from Indian firms between September 2013 and September 2023, we constructed tercile portfolios based on ESG scores, employing both market-capitalisation and equal-weighting approaches. Performance and risk characteristics were assessed through portfolio analysis, while valuation and factor exposures were examined using Fama–MacBeth regressions and the Fama–French five-factor plus momentum model. Findings Higher ESG scores do not consistently enhance portfolio returns in the Indian equity market, although equal-weighted high-ESG portfolios exhibit marginally better downside risk characteristics. The market does not consistently assign valuation premiums to high-ESG firms, with sectoral and size effects playing a significant role. High-ESG portfolios exhibit a positive tilt toward the profitability factor but lack meaningful exposures to other asset pricing factors such as value, momentum or conservative investment behaviour. Originality/value This study provides novel empirical insights into the interplay between ESG scores and financial performance in the Indian equity market, an underexplored area in the ESG literature. These findings are especially relevant for institutional investors and corporate stakeholders in India looking to integrate ESG considerations into strategic decisions and investment frameworks.

Standard asset pricing models struggle to rationalize the value premium anomaly empirical fact through risk arguments since value stocks do not generally carry more risks than growth stocks. We revisit this question by estimating a rare disaster event Consumption-Capital-Asset Pricing model (C-CAPM) that incorporates high-impact mini-disaster events, thereby capturing the dynamic nature of risk premia. Utilizing a post-COVID-19 U.S. consumption dataset, we estimate the model using four different consumption measures: non-durables and services, services alone, non-durables alone, and durables. The model only partially explains the value premium anomaly in post-COVID-19 subsamples when using non-durables and services, services, and non-durables. However, when durables expenditures are incorporated, the model successfully accounts for the value premium anomaly in all pre- and post-COVID-19 periods. Our main contribution is thus the rehabilitation of the rare disaster consumption-based model as an asset pricing model by suggesting that durables rare disasters can explain the value anomaly observed in the U.S. equity market.

This study examines the impact of corporate social responsibility (CSR) disclosure on the financial performance of industrial goods firms in Nigeria. Specifically, the study assessed the effect of corporate social responsibility disclosure on Tobin’s Q and return on assets in Nigeria’s industrial goods sector. Utilizing panel data from five (5) leading industrial goods sampled purposively from firms listed on the Nigerian Exchange (NGX) over a 10-year period (2014–2023), fixed-effects regression models were employed to analyze the relationships. The result of the analysis in this study found that CSR disclosure significantly enhances both Tobin’s Q (β = 0.725, p < 0.01) and ROA (β = 0.102, p < 0.01), confirming its strategic value. The stronger effect on Tobin’s Q indicates investors price CSR disclosures as intangible assets, anticipating future gains. The study also posited that firm size positively influences performance, but with diminishing returns on ROA, suggesting scale inefficiencies. The study also deduced that high leverage negatively impacts both Tobin’s Q and ROA, eroding the benefits of CSR investments. The findings of this study also reconcile Stakeholder Theory (CSR builds trust for performance gains) and Legitimacy Theory (CSR as legitimacy-seeking in regulated sectors). The study, among others, recommends that manufacturing companies in Nigeria should incorporate CSR reporting, with a focus on community involvement and environmental compliance, into their main business plan. This increases market valuation premiums and fosters stakeholder confidence.

Background: Hearing loss adversely affects communication, social participation, and quality of life for millions of adults worldwide. Hearing aids are the mainstay of audiological rehabilitation, but the clinical value of premium versus basic technology remains debated, with inconsistent evidence regarding real-world user outcomes. Objective: To compare user-reported outcomes, feature usability, and overall satisfaction between premium and basic hearing aids among adults with mild-to-moderately severe hearing loss in a clinical setting. Methods: This cross-sectional observational study recruited 196 adults (aged 25–60 years) from a tertiary care audiology center in Lahore, Pakistan, between September 2024 and January 2025. Participants were stratified by device type (102 premium, 94 basic) and degree of hearing loss. Data were collected via a validated, self-administered questionnaire and pure tone audiometry. Key variables included speech clarity, effectiveness in noisy environments, auditory discrimination, feedback noise, sound quality, and usability of advanced features. Group comparisons were analyzed using the Mann-Whitney U test; effect sizes and 95% confidence intervals were reported. Results: Premium hearing aid users reported significantly higher satisfaction across all measured domains, including speech clarity (“excellent” in 52.9% vs. 4.3%), effectiveness in noise (93.1% vs. 11.7% “very/extremely effective”), and feature usability (AutoSense “very useful” in 68.6% vs. 0%; Bluetooth “very useful” in 65.7% vs. 0%), with all p-values <0.001 and large effect sizes. Distributions of composite satisfaction scores were higher and more consistent in the premium group, with non-overlapping confidence intervals across degrees of hearing loss. Conclusion: Premium hearing aids deliver substantially superior user satisfaction, feature usability, and functional performance compared to basic models for adults with mild-to-moderately severe hearing loss. These findings support the clinical value of advanced hearing aid technology for enhancing patient outcomes in routine practice.

Purpose – This paper investigates persistent stock market anomalies, liquidity patterns, volatility spillovers, governance quality, and macroeconomic shocks in emerging markets. The main objective is to provide a comprehensive synthesis of empirical evidence and propose an adaptive, multifactor framework that better captures the evolving dynamics of these markets. Methodology/approach – A systematic literature review methodology is applied, combining thematic analysis and comparative synthesis. Data is sourced from peer-reviewed articles, sectoral reports, and international databases. The review identifies major patterns, evaluates the consistency of empirical findings, and contextualizes results using triangulation with global market data. Findings – Market efficiency in emerging economies is found to be episodic and context-dependent. Size and value premiums persist, but their magnitude shifts with economic regimes, sectoral characteristics, and the presence of liquidity constraints or governance reforms. Novelty/value –Addressing the gap in cross-sector and multi-country research, this paper synthesizes findings from 22 peer-reviewed empirical studies, complemented by authoritative global data. The novelty lies in the construction of a holistic, adaptive framework that incorporates liquidity, volatility, governance, macro shocks, and behavioral biases—elements rarely examined together in the context of emerging markets.

Abstract This paper delves into the value premium in equity returns, exploring the superior performance of value stocks with high book-to-market ( $$\text{BM}$$ BM ) ratios over growth stocks. It introduces two novel decomposition models for $$\text{BM}$$ BM , incorporating Ball et al. (J Financ Econ 135:231–254, 2020)’s findings on the significance of the retained earnings-to-market ( $$\text{REM}$$ REM ) component. Through empirical analysis, the paper demonstrates REM’s predictive superiority over traditional $$\text{BM}$$ BM factors in forecasting stock returns, suggesting a shift toward $$\text{REM}$$ REM in asset pricing models. The research contributes to understanding the dynamics of the value premium, offering a refined methodological approach for evaluating firm value and equity returns.

Abstract Heat-related mortality risks are a substantial component of the looming costs of climate change in the United States and globally. This article presents the results from a risk-risk survey to test whether U.S. respondents place a valuation premium on mortality risks from heat relative to cancer and transportation risks. The questionnaire exploits exogenous shocks to temperatures during a heat wave and randomized elements to further test whether preferences vary with heat exposure or the age of individuals exposed to heat risks. The results provide strong evidence that there is no valuation premium in the U.S. for heat-related risks. Subjects valued cancer risks twice as highly as heat and transportation risks, the latter of which are a common benchmark for general traumatic fatalities. While there is some evidence that subjects value heat risks more when exposed to a heat shock of approximately 3–4 °C, the size of the differential is too small to establish a statistically significant heat risk premium. Finally, subjects’ responses demonstrate no differential valuation of mortality risks to seniors versus the general population based on the preferences of the general population or the senior subsample.

Introduction: This study examines the effects of ESG performance on stock returns in India through incorporation of ESG to the Fama-French five-factor model. It fills the research gap by testing ESG effects in an emerging market environment with econometric models. Objectives: In order to look at the impact of ESG performance on excess stock returns in the Indian market with the integration of ESG scores in the Fama-French five-factor model and to study the interaction between ESG and size and value factors in shaping the return dynamics. Methods: Utilizing panel data for 183 Indian companies (2014–2023), the study applies pooled OLS, fixed effects and logit regressions. ESG scores are lagged, integrated with both the traditional Fama-French factors and the interaction terms and quadratic components in order to assess linear and nonlinear pricing effects. Results: The results from pooled OLS regressions and fixed effects panel regressions show that ESG has a statistically significant positive effect on excess returns. According to the results of a logit regression model, ESG scores create a positive impact on the chances of positive abnormal returns. Research using a two-sample t-test proves that businesses scoring higher on ESG than the median demonstrate superior market performance when compared to firms in the lower-performance category. The value premium receives an enhancement from ESG investments according to interaction models, but the size effect receives a moderation as per these models, and non-linear analysis detects no evidence of reduced ESG returns. Conclusions: The study enriches existing research by establishing the implementation of ESG effects in a confined econometric framework, which produces fresh expertise on sustainability price effects in emerging markets

PurposeThis article aims to analyze whether local investor sentiment is causing mispricing in value premium in emerging Latin American countries and whether uncertainty mitigates this effect.Design/methodology/approachWe analyzed 428 non-financial publicly traded firms in Argentina, Brazil, Chile and Mexico, accumulating 1,067,930 daily observations. To measure investor sentiment, we utilized both market and firm-level indexes. In addition, we incorporated the Economic Policy Uncertainty (EPU), World Uncertainty Index (WUI), Chicago Board Options Exchange (CBOE) Volatility (VIX) and Google Trends® to represent uncertainty. We regressed high minus low (HML) on market sentiment and uncertainty, and we employed a six-factor model with the risk factor based on firm-specific investor sentiment, competing with HML.FindingsThe main results show that HML yields positive returns in most countries studied. Surprisingly, market sentiment does not affect HML as expected; instead, uncertainty emerges as a more influential factor, reducing HML’s return. Factor sentiment contributes to asset pricing in countries with favorable political-economic conditions. The negative impact of uncertainty and external sentiment suggests that reason prevails over emotion in these markets, suggesting that investors are more rational than expected.Originality/valueWe contribute to the literature by examining the political-economic situation and market sentiment proxies, incorporating low-cost uncertainty and rapid information response through news channels (EPU/WUI) and the Internet (TRENDS). Additionally, we expand asset pricing literature by identifying a new risk factor in emerging Latin American countries. Our main contribution is evaluating the viability of investing in the value premium, a widely adopted strategy covered by the media.

Cardiac implantable electronic devices (CIED) with reactive atrial-based anti-tachycardia pacing (rATP) have been developed to stop the progression of atrial fibrillation (AF), a frequently occurring arrhythmia. This study assessed the value of rATP from the Australian private healthcare payer perspective. A Markov state-transition model, including bradycardia, stroke, heart failure (HF), and death, was used to evaluate the value of rATP in conjunction with either pacemakers (PM), implantable cardioverter defibrillators (ICD), cardiac resynchronization therapy pacemakers (CRT-P), or CRT defibrillators (CRT-D). It was assumed that PM patients have bradycardia with no AF, and other patients have mild HF at insertion. Efficacy inputs, battery life, and device costs varied between devices. Conservatively, outpatient/follow-up costs of stroke and HF were excluded. All analyses were conducted using a cost-effectiveness threshold of 50 000 Australian dollars (A$) per quality-adjusted life year (QALY) gained, and deterministic sensitivity analysis was performed on key inputs. Using a 30-year horizon and a 5% discount rate, rATP was cost-effective up to a value of A$5609 (PM), A$11 628 (CRT-D), A$14 142 (CRT-P), and A$17 858 (ICD). In sensitivity analysis, varying patient age, rATP efficacy, HF and stroke mortality, stroke recurrence risk, utility values, time horizon, battery life, and the discount rate, the value of rATP ranged from A$3122 to A$11 375 (PM), A$1455 to A$26 409 (ICD), A$1171 to A$20 674 (CRT-P), and A$973 to A$16 907 (CRT-D). Reactive ATP provides clinical benefits to patients who require a CIED. These benefits justify a value premium for devices with rATP functionality.

This study aims to build a portfolio of value stocks and growth stocks and identify the existence of a value premium on the Indonesia Stock Exchange during 2019-2023. T-test and Mann-Whitney U test are needed in this study to analyze performance and determine whether there is a significant difference in the returns generated by the value portfolio and the growth portfolio. The secondary data used are LQ45 companies listed on the IDX for the 2019-2023 period. The results of the study showed that there was no significant difference in returns between the value stock portfolio and the growth stock portfolio. Thus, the existence of a value premium in companies listed in the LQ45 on the IDX during the 2019-2023 period cannot be proven.

Abstract We provide evidence that dividend-paying stocks are less exposed to return extrapolation than non-dividend-paying stocks. In particular, social media sentiment and analyst price targets of dividend-paying stocks are significantly less sensitive to past returns. Our findings indicate that this difference stems from price changes playing a larger role in extrapolation and dividends diverting attention away from price changes for dividend-paying stocks. Consistent with models of return extrapolation, dividend-paying stocks earn lower momentum and long-term reversal returns. The value premium, however, is similar among both groups. Collectively, our findings suggest that return extrapolation is an important source of some anomaly returns.

This study analyzed the effects of the sub-factors of middle-aged men’s appearance perception, namely “personal interest” and “social influence,” on attitudes toward using men’s specialty hair salons, while also examining the mediating effects of salon selection attributes (store image, marketing, and location convenience). The survey was conducted on 330 middle-aged men aged 40 to 59. The analysis revealed that appearance perception exhibited partial mediating effects on attitudes toward using men’s specialty hair salons through salon selection attributes. However, location convenience did not show a mediating effect in the relationship between “personal interest” and usage attitude. These findings suggest the importance of developing differentiated services that simultaneously address personal interest and social influence as key motivators for middle-aged men’s appearance management. Particularly, the lack of a mediating effect for location convenience in the relationship between personal interest and usage attitude indicates that customers with stronger personal motivations for appearance management may value premium services or personalized spaces over accessibility. Therefore, strategies enhancing location convenience may be more effective for socially driven customers, while personalized premium services should target customers prioritizing personal motivations. This study provides foundational data for establishing differentiated services and marketing strategies reflecting middle-aged men’s appearance perceptions, contributing to the operation of men’s specialty hair salons and the development of the beauty industry.

This paper evaluates the applicability of the Fama-French three-factor model in optimizing portfolio construction and maximizing returns, using historical stock data from various industries over the period from 2002 to 2022. The analysis is divided into two distinct sub-periods, 2002-2012 and 2013-2022, to assess the model’s performance across different economic conditions. The study identifies the market risk premium (Mkt-RF) as the most significant determinant of portfolio returns, especially prominent during the 2013-2022 period. The size premium (SMB) exhibited a negative correlation with portfolio returns, indicating an underperformance of large-cap stocks relative to small-cap stocks, especially in the later period. In contrast, the value premium (HML) was found to be statistically insignificant, suggesting that the value factor did not substantially impact portfolio returns during this time frame. These results underscore the importance of market exposure and the consideration of size factors in portfolio construction while also highlighting the limited impact of the value factor in recent years. The study provides actionable insights for first-time investors and portfolio managers seeking to refine investment strategies based on the dynamics of market risk, size, and value factors. First of all, this indicates the need to align a portfolio with wide market trends by using an index fund or ETF to gain the benefit arising from market risk premium. It also underlines that a balance has to be created between large-cap and small-cap shares to have the returns optimized under specific market conditions. This, in turn, suggests that dependence on the value factor has to be dynamic, anchoring growth stocks in innovative-driven markets but keeping an eye on any change in the economic cycle. These thus provide actionable insights into refining investment approaches with the use of the Fama-French model as a foundational tool.

Paying for the innovative value of drugs is an important means of mitigating healthcare system duplication and enhancing patient health. Assessing and exploiting the factors influencing innovation premium to forecast trends and shortcomings within the pharmaceutical innovation ecosystem. Utilizing system dynamics, this research constructs a decision evaluation system for new drug pricing in Japan. It integrates various decision-making factors across dimensions such as value premium, marketability premium, pediatric premium, and SAKIGAKE premium, employing Vensim PLE software for simulation purposes. Under the current policy framework, pharmaceutical innovation is on the rise, with significant policy effects observable after 5years. The most substantial growth in value occurs in medications for rare diseases and niche markets, with effects varying in the short to medium term and stabilizing over the long term. Sensitivity analysis highlights that factors like combination therapies, faster mechanisms of action, and novel therapeutic parts notably influence the value dimension. Other significant factors include obtaining national certifications, addressing indications lacking standard treatments, and demonstrating superior efficacy. The study also identifies underexploited opportunities related to the use of evidence in pricing decisions. Clinical outcomes are pivotal in shaping drug pricing, influencing both patient and healthcare provider preferences, and thereby affecting market uptake and competitive dynamics. Regulatory frameworks that prioritize unmet medical needs or superior drug efficacy are essential. Future enhancements to the model should incorporate more real-world evidence and expand regulatory considerations to better reflect the dynamic nature of the healthcare sector and support equitable, outcome-based drug pricing.

This study examines the applicability of the Fama-French 3-factor model to Real Estate Investment Trusts (REITs) in emerging economies using monthly data from January 2016 to December 2023 for 23 REITs across five emerging markets. A Generalized Method of Moments (GMM) (system) approach assesses the impact of 12 explanatory variables, including traditional factors like market, value, size, and momentum premiums, as well as emerging market-specific factors such as the Morgan Stanley Capital International (MSCI) Emerging Markets Currency Index and Bloomberg Commodity Ex-Agriculture Index. Control variables like political stability, foreign direct investment, and portfolio investment are also included. The results show that value premium, foreign direct investment, portfolio investment, and commodity prices positively influence REIT excess returns, while momentum premium and political instability negatively affect them. These findings highlight the combined importance of traditional and emerging market-specific factors, emphasizing the critical role of stable political conditions for REIT performance. This research contributes valuable insights for investors and policymakers in understanding REIT dynamics in emerging markets.

The article aims to determine the special importance of pricing during operations and transactions, concluding contracts, defining currency quotes and establishing mutual relations – which is what characterizes the foreign economic activity of the enterprise to the highest extent. It is found that foreign economic activity is not only of mandatory importance in the business sphere where the company is involved, but also has a prospective nature, while pricing plays the most important role. This provides for the use of research methods on pricing in the foreign economic activity of the company, which include monographic method – to show what the foreign economic activity of the company was based upon and to specify details as to oscillations in exchange rates; method of expert assessments – different points of view on determination of the sliding prices when concluding a contract; method of comparison – to compare the effective ratio of interest rates in the own foreign trade operations of the company; method of extrapolation – the value of the price premium calculated for the sale of the articles produced by the company that determines the trade transactions. Thus, the essence and mandatory importance of conducting foreign economic activity at the company are revealed. This proves that only through pricing does foreign economic activity at the company demonstrate the perfection of business relations with other counterparties, as a result of which sales markets expand, the competitiveness of manufactured products and the ability to manage cash flows increase. On this basis it is concluded that the foreign economic activity at the company is the ability of the latter to strengthen and diversify trade relations with other counterparties and the management of a commodity policy in accordance with the achieved results.

In the context of increased control over greenhouse gas emissions, oil and gas companies may face additional financial risks associated with the transition to a low-carbon economy. The article is devoted to the issues of assessment of the carbon risk premium for oil and gas companies. Taking into account the unreliability of statistical estimates of the carbon risk premium, the article proposes an analytical approach to determining this indicator using scenarios. The proposed approach assumes that the value of carbon risk premium should depend on the likelihood of a low-carbon scenario and the degree of company’s strategy compliance with this scenario.