The value premium : the value premium over the bull-bear market and the economical cycle

Masteroppgave i økonomi og administrasjon - Universitetet i Agder 2011The master thesis “The Value Premium over the Bull-Bear Market and the Economical cycle” is devoted to the analysis of the time variations in the value premium during the bull-bear markets and the economic cycle. A regression model with a dummy variable was used as the main analytical tool. It was confirmed that the CAPM fails to explain the value premium in the later historical period in accordance with the studies of Lakonishok and Shapiro (1986) and Fama and French (1993 and 2006). It is found that the value stocks tend to do better in bear market which concretizes the hypothesis of Petkova and Zhang (2005) that the value premium is generated during the periods of loosely speaking “bad times”. In addition, the results of the thesis allow rejecting hypothesis of Gulen, Xing, and Zhang (2008 and 2010) that the value premium appears during economic recessions. Keywords: Time-varying Value Premium; Value Stocks; Glamour Stocks; Bull-Bear Markets; Economic Cycle