Value Uncertainty

Bali, Turan G.; Viva, Luca Del; Hefnawy, Menatalla El; Trigeorgis, Lenos

Abstract

We examine how time-series volatility of book-to-market (UNC) is priced in equity returns and the relative contributions of its book volatility (variations in earnings and book value) and market volatility components (shocks in required return). UNC captures valuation risk, so stocks with high valuation risk earn higher return. An investment strategy long in high-UNC and short in low-UNC firms generates 8.5% annual risk-adjusted return. UNC valuation risk premium is driven by outperformance of high-UNC firms facing higher information risk and is not explained by established risk factors and firm characteristics.

Citation

Bali, T. G., Viva, L. D., Hefnawy, M. E., & Trigeorgis, L. (in press). Value Uncertainty. Management Science,

• Journal Article Type: Article
• Acceptance Date: Nov 20, 2022
• Deposit Date: Feb 6, 2023
• Publicly Available Date: Feb 6, 2023
• Journal: Management Science
• Print ISSN: 0025-1909
• Electronic ISSN: 1526-5501
• Publisher: Institute for Operations Research and Management Sciences
• Peer Reviewed: Peer Reviewed
• Public URL: https://durham-repository.worktribe.com/output/1183719
• Publisher URL: https://pubsonline.informs.org/journal/mnsc