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from-the-field-175x95px.jpgFROM THE FIELD: Robeco researchers publish many whitepapers based on their own empirical studies. But they also closely follow quantitative research done by others. Head of Quantitative Equities Research David Blitz comments on notable external papers.

From the field: What’s driving the value premium?

06-04-2016 | Insight | David Blitz, PhD The academic literature provides two competing theories on what drives the value premium: exposure to risk factors, or mispricing of securities.

According to the first theory the anomalous returns should be concentrated in stocks that are highly sensitive to the Fama-French value factor (HML), while according to the second theory the returns should be concentrated in stocks with the most extreme valuation ratios.

This study* disentangles these two explanations and finds strong evidence in favor of the mispricing hypothesis. The authors also suggest that an improved value strategy may be constructed by selecting stocks which combine attractive valuation ratios with low correlations to the Fama-French value factor.

* Chaves, Hsu, Kalesnik & Shim (2013), “What Drives the Value Premium? Risk versus Mispricing: Evidence from International Markets”, Journal of Investment Management 11(4), 1-18; and “Two Nobel laureates…Two Tales of Mispricing”, RAFI white paper, November 2013.
David Blitz

David Blitz, PhD

Head Quantitative Equities Research

“Factor investing, aimed at systematically capturing the value, momentum, low-volatility and other premiums, holds the future.”

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David Blitz, PhD
Head Quantitative Equities Research


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