When considering the proponents regarding conventional theory towards the pricing of asset, there can be an identification of the puzzle behind value premium. This can be stated as growth stocks within which values have more dependency on the stages of business and it may involve risk within which there is low dependency of values considering the scenarios of economy. Therefore, it can be stated that growth stocks are known to be dealing with the involvement of higher betas as well as higher returns. However, none of the arguments have been placed by empirical evidences to consider the accuracy of this statement. On the other hand, value stock can be considered to have high returns when comparing it with growth stock but there is an involvement of low betas.
Considering a famous example, the HML of Fama- French ended up returning 0.45 per cent as per month within the period of 1963 and 2006. Even when considering the risk systematically, the estimated value of Alpha had been identified as 0.58 per cent and is said to involve high significance. Since recent time, Chen et al. (2006) mentioned about less evidence in order to claim that the impact of value premium has weakened significance. Hence, it can be considered as an anomaly persistent scenario. There can be a calculation of HML by “high book-to-market portfolio returns minus low book-to-market portfolio returns”. An argument had been placed by Fama (1993) and French (1995) that there can be a consideration of HML as a risk factor for the representation of distress related to finance among weak business organizations where there is an involvement of low earnings. There is an underlying tendency to have higher ratios when considering book value to market value. From the other perception, there was an underlying suggestion by Lakonishok et al. (1994) that if investors incorrectly extrapolated, the past growth of earning value ends up becoming a source to generate value premium.
When considering the principle of accountancy, in the duration of uncertainty, the underlying deference is to recognize earnings from the future until or unless uncertainty is resolved. This is the principle of realization that is known to be commanding the accountants to consider book earning while there is a need of largely resolving risk within the actual earnings as per what is expected. In accordance with the asset pricing theory, an accountant may not have the abilityto recognize the value of earning until the business organization will consider booking an asset when comparing low beta. Most of the time is cash receivable or near- cash receivable.