@article{637c318d6cb143e9ad08dac0200fb32d,
title = "Can mispricing explain the value premium?",
abstract = "Empirical research finds that stocks with low market-to-book (MTB) ratios outperform stocks with high MTB ratios. Rhodes-Kropf, Robinson, and Viswanathan separate the MTB ratio into mispricing and growth options components. We report that the mispricing component, but not the growth options component, predicts abnormal returns for up to 5 years. We also find that the mispricing component, but not the growth options component, provides incremental information relative to existing asset pricing models. Moreover, after controlling for mispricing, value no longer beats growth. Overall, our evidence is consistent with a behavioral explanation of the value premium.",
keywords = "G14, growth options, mispricing, return predictability, value premium",
author = "Jaffe, {Jeffrey F.} and Jan Jindra and Pedersen, {David J.} and Torben Voetmann",
note = "Funding Information: We would like to thank the anonymous referee and Bing Han (Editor) for detailed and insightful suggestions. J. Bao, M. Cain, S.P. Kothari, and E. Smith provided helpful comments. The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author's colleagues upon the staff of the Commission. D.J. Pedersen acknowledges partial financial support from the David Whitcomb Center for Research in Financial Services of Rutgers University. T. Voetmann acknowledges that the views expressed in this article are solely those of the authors who are responsible for the content, and do not necessarily represent the views of The Brattle Group. Publisher Copyright: {\textcopyright} 2019 Financial Management Association International",
year = "2020",
month = sep,
day = "1",
doi = "10.1111/fima.12272",
language = "English (US)",
volume = "49",
pages = "615--633",
journal = "Financial Management",
issn = "0046-3892",
publisher = "Wiley-Blackwell",
number = "3",
}