Value stocks have higher returns than growth stocks in markets around the world. For the period 1975 through 1995, the difference between the average returns on global portfolios of high and low book-to-market stocks is 7.68 percent per year, and value stocks outperform growth stocks in twelve of thirteen major markets. An international capital asset pricing model cannot explain the value premium, but a two-factor model that includes a risk factor for relative distress captures the value premium in international returns. INVESTMENT MANAGERS CLASSIFY FIRMS that have high ratios of book-to-market equity ~B0M!, earnings to price ~E0P!, or cash flow to price ~C0P! as value stocks. Fama and French ~1992, 1996! and Lakonishok, Shleifer, and Vishny ~1994! show that for U.S. stocks there is a strong value premium in average returns. High B0M, E0P, or C0P stocks have higher average returns than low B0M, E0P, or C0P stocks. Fama and French ~1995! and Lakonishok et al. ~1994! also show that the value premium is associated with relative distress.

this paper. We would also like to thank Simona Zambelli for research assistance. Sponsorship from the BSI Gamma Foundation is gratefully acknowledged. 1 risks associated with DB plans are borne by the plan sponsor, usually a large company, rather than the plan member. However, most DB plans suffer from poor portability, so that when a worker moves jobs, he can end up with a much lower pension in retirement

plan design and value-at-risk during the accumulation phase