We investigate whether time-series volatility in book-to-market (UNC) is priced in equity returns. UNC captures uncertainty about the current value of the firm's portfolio of assets-in-place and real options, and reflects changes in moneyness and uncertainty in the exercise of these options. UNC is also associated with information risk, firm inflexibility, and investment volatility and commands a positive premium. An investment strategy long in high-UNC and short in low-UNC firms generates 13% annual risk-adjusted return. UNC premium is driven by outperformance of high-UNC (inflexible) firms facing higher information risk and is not explained by established risk factors and firm characteristics.

Keywords: Real Options, value stocks, book-to-market uncertainty, equity returns

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