The Value Premium

Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility ofmonthly premiums prevents us from rejecting the hypothesis that expected premiums are the same in both halves of the sample. Regressions that forecast value premiums with book-to-market ratios in excess of market (BM-BMM) produce more reliable evidence of second-half declines in expected value premiums, but only if we assume the regression coefficients are constant during the sample period.