Factor-loading uncertainty and expected return: Value vs. growth stocks

Abstract

The literature suggests that uncertainty in systematic risk-factor loadings, such as beta, may be priced in the cross-section of stock returns. We investigate this relationship for value and growth stocks in the Korean market, where individual investors are the dominant participants. Our findings show that factor-loading uncertainty is positively associated with returns for value stocks, but negatively associated for growth stocks. Moreover, institutional net buying activity strengthens the positive relationship for value stocks, while their trading appears to have no significant effect on the relationship for growth stocks.