PT - JOURNAL ARTICLE AU - Cathy Xuying Cao AU - Chongyang Chen AU - Vinay Datar TI - Value Effect and Macroeconomic Risk AID - 10.3905/joi.2017.26.3.041 DP - 2017 Aug 31 TA - The Journal of Investing PG - 41--52 VI - 26 IP - 3 4099 - https://pm-research.com/content/26/3/41.short 4100 - https://pm-research.com/content/26/3/41.full AB - The authors study the extent to which macroeconomic risk (i.e., the innovations in macroeconomic variables) drives the positive cross-sectional relationship between future stock returns and relative firm value, using such measures as the book-to-market ratio and earnings-to-price ratio. The authors provide evidence that value stocks are riskier than growth stocks. They show that value stocks have higher risk loadings than growth stocks on the growth rate of industrial production, the term premium, and the default premium. They also find that the risk loadings and risk premiums account for more than half of the average return spreads between value and growth portfolios. The evidence suggests that risk plays an important role in explaining the value effect, which has implications for value and growth investment.TOPICS: Fundamental equity analysis, analysis of individual factors/risk premia