Continued from Pt.1….Value investing: The academic research [Pt. 1]
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Value Investing - Study two: Risky Value
The second study discussed in UBS’s research on value is "Risky Value" by Atif Ellahie, Michael Katz & Scott Richardson. As already highlighted in the previous paper, there is a lack of a broad consensus as to whether the value premium constitutes compensation for bearing some type of systematic risk, or the outcome of behaviorally-driven mispricing.
Atif Ellahie, Michael Katz, and Scott Richardson attempt to provide further support to a risk-based story by exploring value investing across 30 countries. The authors start their analysis by stating an accounting identity and therefore forming hypotheses as to what drives expected returns.
The authors begin with the clean surplus...
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