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An evolutionary explanation of the value premium puzzle |
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| Authors: | Thorsten Hens Terje Lensberg Klaus Reiner Schenk-Hopp�� Peter W?hrmann |
| Institution: | (1) Swiss Banking Institute, University of Zurich, Plattenstrasse 32, 8032 Z?rich, Switzerland;(2) Department of Finance and Management Science, Norwegian School of Economics and Business Administration, Bergen, Norway;(3) Leeds University Business School and School of Mathematics, University of Leeds, Leeds, LS2 9JT, UK;(4) Swiss Federal Institute of Technology Zurich, Kreuzplatz 5, 8032 Z?rich, Switzerland |
| Abstract: | As early as 1934 Graham and Dodd conjectured that excess returns from value investment originate from a tendency of stock prices to converge towards a fundamental value. This paper confirms their insights within the evolutionary finance model of Evstigneev et al. (Econ Theory 27:449–468, (Evstigneev et al. 2006)). Our empirical results show the predictive power of the evolutionary benchmark valuation for the relative market capitalization and its dynamics in the sample of firms listed in the Dow Jones Industrial Average index in 1981–2009. |
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