The cyclical behavior of the risk of value strategy: Evidence from Taiwan

Using Taiwanese equity data, we find that value-minus-growth strategies (HML) earn significantly positive expected returns, and that the value spread in B/M is widened following a financial crisis. Value firms disinvest more than growth firms in bad times. The HML betas are higher for periods of higher expected equity premium, higher market volatility, and lower GDP growth. Furthermore, while the HML betas are negative and positive for the pre- and post-crisis sample, respectively, the value (growth) betas increase (decrease) from pre- to post-crisis period. Also, the beta-premium sensitivity is positive for HML and value stocks, and negative for growth stocks.