INVESTIGATING THE VALUE PREMIUM IN THE SWEDISH STOCK MARKET

Sammanfattning: nvestigating the Swedish stock market, we find value stocks to have significantly outperformed growth stocks during the period of 1993 to 2017. As value stocks are found to be riskier during bad states of the economy, the existence of the value premium can be partly attributed to time-varying risk. Value betas are anticyclical, while growth betas exhibit a procyclical pattern. Controlling for time-varying risk slightly reduces the value premium and its significance, yet it remains positive. The search for other relevant factor using an APT model lead to the finding that a model based on the Carhart four-factor model reduces alphas to zero, with market excess returns and the momentum factor showing a negative effect on the value premium. An APT model using macroeconomic variables shows limited explanatory power with regards to the value premium.