The Value Premium

Value premium is a market anomaly in which the return of value stocks is higher than the return of growth stocks over a longer period of time.In mature foreign capital markets,the phenomenon of value premium has been widely proved to exist.As a market anomaly,many scholars have tried to explain the mystery of the cause of value premium.It is mainly explained from the perspective of standard finance and behavioral finance,while value premium is explained from the perspective of standard finance mainly based on the theory of risk compensation,while value premium is explained from the perspective of behavioral finance mainly based on the overreaction hypothesis and investor sentiment.China's stock market is an emerging market,and there is still a big gap between market system and investor behavior and mature market.Does the value premium exist in China's stock market? What are the causes of value premium? This paper studies these two problems and explores the performance of value premium in Chinese stock market.This paper firstly sorts out the literature of the research on value premium at home and abroad,summarizes the causes of value premium in standard finance and behavioral finance in chronological order,and seeks for a breakthrough.Secondly,the paper studies the existence of value premium in Chinese stock market by combination spread method,and further seeks the best holding period of value premium.Then,according to the theory of risk compensation,this paper explores the causes of value premium from the perspective of market liquidity risk.Taking Shanghai and Shenzhen A-shares from January 1997 to December 2017 as the research object,this paper examines the risk sources of value premium from the perspective of market liquidity risk,conducts A comparative study on liquidity risk and return of value stocks and growth stocks,and analyzes the explanatory power of liquidity factors to value factors in China's stock market.Finally,the conclusion is drawn to contribute to the standard financial explanation of value premium in Chinese stock market.According to the research in this paper.Firstly,the value premium phenomenon is significant in China's stock market,and the value premium is positive in both small-cap stocks and large-cap stocks.Secondly,the optimal holding period for value premium investments in China's stock market is one year.Thirdly,the market liquidity risk of value stocks is higher than that of growth stocks.The reason for the value premium is that value stocks bear higher market liquidity risk.The value premium can be explained from the perspective of risk compensation.Fourthly,the investment factor and profit factor cannot explain the value factor in Chinese stock market,while the liquidity factor can.