TY  - JOUR
AU  - Cohen,Randolph B.
AU  - Polk,Christopher
AU  - Vuolteenaho,Tuomo
TI  - The Value Spread
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8242
PY  - 2001
Y2  - April 2001
UR  - http://www.nber.org/papers/w8242
L1  - http://www.nber.org/papers/w8242.pdf
N1  - Author contact info:
Randolph Cohen
MIT
E-Mail: rbcohen@mit.edu

Christopher Polk
Department of Finance
London School of Economics
Houghton St.
London WC2A 2AE
UK
Tel: +44 (0)20 7849 4917
Fax: +44 (0)20 7852 3580
E-Mail: c.polk@lse.ac.uk

Tuomo Vuolteenaho
Arrowstreet Capital
200 Clarendon Street #30
Boston, MA 02116-5021
Tel: 617/496-6284
Fax: 617/495-8570
E-Mail: tvuolteenaho@arrowstreetcapital.com
AB  - We decompose the cross-sectional variance of firms' book-to-market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time-series results, transitory cross-sectional variation in expected 15-year stock returns causes only a relatively small fraction (20%) of the total cross-sectional variance. The remaining dispersion can be explained by expected 15-year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value-minus-growth strategies is atypically high at times when the value spread (the difference between the book-to-market ratio of a typical value stock and a typical growth stock) is wide.
ER  -