Get new articles by email:

Oblivious Investor offers a free newsletter providing tips on low-maintenance investing, tax planning, and retirement planning.

Join over 21,000 email subscribers:

Articles are published Monday and Friday. You can unsubscribe at any time.

Investing Blog Roundup: Fama French Value Premium Update

Eugene Fama and Kenneth French recently released a new paper looking at the value premium (i.e., the additional returns earned by stocks with high book-to-market ratios — “value” stocks — relative to the overall stock market).

The point of the paper was to determine whether the expected value premium declined or disappeared after the publication of their initial papers on the topic in 1992 and 1993.

That is, the value premium has been quite a bit lower since the publication of their papers. But there’s a question of whether that was because:

  1. The expected premium has declined/disappeared, or
  2. The expected premium is still there, but the random nature of the stock market happened to result in a lower premium (in much the same way that stocks have an expected risk premium relative to bonds, but over any particular period they may not actually earn more).

Their conclusion:

“The high volatility of monthly value premiums clouds inferences about whether the declines in average premiums reflect changes in expected premiums. Comparing the first and second half-period averages, we don’t come close to rejecting the hypothesis that out-of-sample expected premiums are the same as in-sample expected premiums. But the imprecision of the estimates implies that we also can’t reject a wide range of lower values for second half expected premiums.”

In other words, “we don’t really know.” The value premium is sufficiently volatile that we can’t say conclusively whether the expected value premium has declined or not.

Other Recommended Reading

Thanks for reading!

New to Investing? See My Related Book:


Investing Made Simple: Investing in Index Funds Explained in 100 Pages or Less

Topics Covered in the Book:
  • Asset Allocation: Why it's so important, and how to determine your own,
  • How to to pick winning mutual funds,
  • Roth IRA vs. traditional IRA vs. 401(k),
  • Click here to see the full list.

A Testimonial:

"A wonderful book that tells its readers, with simple logical explanations, our Boglehead Philosophy for successful investing." - Taylor Larimore, author of The Bogleheads' Guide to Investing
Disclaimer: By using this site, you explicitly agree to its Terms of Use and agree not to hold Simple Subjects, LLC or any of its members liable in any way for damages arising from decisions you make based on the information made available on this site. I am not a registered investment advisor or representative thereof, and the information on this site is for informational and entertainment purposes only and does not constitute financial advice.

Copyright 2022 Simple Subjects, LLC - All rights reserved. To be clear: This means that, aside from small quotations, the material on this site may not be republished elsewhere without my express permission. Terms of Use and Privacy Policy

My new Social Security calculator (beta): Open Social Security