Downside risk aversion, fixed-income exposure, and the value premium puzzle

Guido Baltussen, Gerrit T. Post, Pim Van Vliet

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The value premium is relatively small for investors with a material fixed-income exposure, such as insurance companies and pension funds, especially when they are downside-risk-averse. Value stocks are less attractive to these investors because they offer a relatively poor hedge against poor bond returns. This result arises for plausible, medium-term evaluation horizons of around one year. Our findings cast doubt on the practical relevance of the value premium for these investors and reiterate the importance of the choice of the relevant test portfolio, risk measure and investment horizon in empirical tests of market portfolio efficiency.

Original languageEnglish
Pages (from-to)3382-3398
Number of pages17
JournalJournal of Banking and Finance
Volume36
Issue number12
DOIs
Publication statusPublished - Dec 2012
Externally publishedYes

Fingerprint

Investors
Fixed income
Downside risk aversion
Value premium
Empirical test
Market portfolio
Bond returns
Hedge
Pension funds
Evaluation
Risk measures
Downside risk
Risk-averse
Portfolio risk
Insurance companies
Investment horizon
Practical relevance
Value stocks
Portfolio efficiency

Keywords

  • Asset pricing
  • Downside risk
  • Fixed income
  • Investment horizon
  • Value premium

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Cite this

Downside risk aversion, fixed-income exposure, and the value premium puzzle. / Baltussen, Guido; Post, Gerrit T.; Van Vliet, Pim.

In: Journal of Banking and Finance, Vol. 36, No. 12, 12.2012, p. 3382-3398.

Research output: Contribution to journalArticle

Baltussen, Guido ; Post, Gerrit T. ; Van Vliet, Pim. / Downside risk aversion, fixed-income exposure, and the value premium puzzle. In: Journal of Banking and Finance. 2012 ; Vol. 36, No. 12. pp. 3382-3398.
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