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.
Robeco Institutional Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and does not deal with Retail Clients as defined by the DFSA.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.