This paper investigates the effect of macroeconomic expectations on the value premium. We introduce a two-pass estimation procedure to extrapolate the impact of investors’ macro expectations on the firm fundamental value of Rhodes-Kropf, Robinson, and Viswanathan (2005). We find that the level and slope of the term structure affect valuation, revealing a heavily industry-dependent effect. The portfolios sorted on metrics orthogonal to macroeconomic variables show a clear association between the misvaluation component of value premium and size risk. By removing the influence of the macroeconomic conditions and size, we separate the portion of the value premium that rewards macroeconomic expectations.

Beccalli, E., Doninelli, N., Orsini, C., Value Premium and Macroeconomic Variables, <<EUROPEAN FINANCIAL MANAGEMENT>>, 2022; (na): 1-47 [http://hdl.handle.net/10807/215345]

Value Premium and Macroeconomic Variables

Beccalli, Elena;Doninelli, Nicola;Orsini, Cesare
2022

Abstract

This paper investigates the effect of macroeconomic expectations on the value premium. We introduce a two-pass estimation procedure to extrapolate the impact of investors’ macro expectations on the firm fundamental value of Rhodes-Kropf, Robinson, and Viswanathan (2005). We find that the level and slope of the term structure affect valuation, revealing a heavily industry-dependent effect. The portfolios sorted on metrics orthogonal to macroeconomic variables show a clear association between the misvaluation component of value premium and size risk. By removing the influence of the macroeconomic conditions and size, we separate the portion of the value premium that rewards macroeconomic expectations.
Inglese
Beccalli, E., Doninelli, N., Orsini, C., Value Premium and Macroeconomic Variables, <<EUROPEAN FINANCIAL MANAGEMENT>>, 2022; (na): 1-47 [http://hdl.handle.net/10807/215345]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/215345
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