Charles E. Hyde and Michael P. Triguboff
Volume 7, Number 2, Second Quarter 2009
Using monthly data from 1992-2006, we show the value premium in Asia ex Japan is positively related to the cross-sectional dispersion of four common value ratios. The book-to-price and cash flow-to-price spreads exhibit the strongest relationship. Typical month-to-month variation in these two value spreads is often associated with a 0.4-1.0% per annum change in the value premium. Short-side positions are typically solely responsible for the positive relationship, particularly in recent years. Our results provide out of sample support for previous findings for the US market, but cast doubt on whether mean reversion alone can explain the observed value premium-spread relationship.