The Value Premium and Changing Expectations: On the Growth of Value Stocks and the Value of Growth Stocks

2006 ◽  
Author(s):  
Tessa Wouters ◽  
Auke Plantinga
Keyword(s):  
Value Premium ◽  
Value Stocks ◽  
Growth Stocks

scholarly journals The value and accounting premium for South African-listed shares

2008 ◽  
Vol 2 (2) ◽  
pp. 187-202
Author(s):  
Jürgen Ernstberger ◽  
Christian Heinze ◽  
Oliver Vogler
Keyword(s):  
South African ◽  
Financial Reporting ◽  
The United States ◽  
High Ratio ◽  
Value Premium ◽  
Accounting Standard ◽  
Value Stocks ◽  
Financial Reporting Standards ◽  
The Us ◽  
Growth Stocks

In the last decade, empirical research has found strong evidence that value stocks provide higher returns than growth stocks (value premium). Firms with a high ratio of book value of equity to market value of equity are regarded as value stocks; a low ratio identifies growth stocks. Most research is tailored to the market in the United States of America. Only a few studies consider country-specific distinctions. This research analyses the value premium for the South African market and compares its magnitude to the findings for the US market. Moreover, the effects of the introduction of International Financial Reporting Standards (IFRS) for companies listed at the JSE Limited are examined. The adoption of IFRS is used to demonstrate that investors award an accounting premium for voluntary compliance with this new accounting standard.

scholarly journals Value and growth stocks in Brazil: risks and returns for one - and two-dimensional portfolios under different economic conditions

2011 ◽  
Vol 22 (56) ◽  
pp. 189-202 ◽  
Author(s):  
Leandro da Rocha Santos ◽  
Roberto Marcos da Silva Montezano
Keyword(s):  
Risk Analysis ◽  
Stock Market ◽  
Stock Prices ◽  
Risk Measure ◽  
Academic Research ◽  
Efficient Market Hypothesis ◽  
Economic Conditions ◽  
High Price ◽  
Value Stocks ◽  
Growth Stocks

For empirical purposes, value stocks are usually defined as those traded at low price-to-earnings ratios (stock prices divided by earnings per share), low price-to-book ratios (stock prices divided by book value per share) or high dividend yields (dividends per share divided by stock prices). Growth stocks, on the other hand, are traded at high price-to-earnings ratios, high price-to-book ratios or low dividend yields. Academic research so far produced, international and Brazilian alike, shows that value stocks outperform growth stocks, challenging the Efficient Market Hypothesis, which states that the market prices of traded stocks are the best estimate of their intrinsic values. Most studies use a single ratio to sort stocks on percentiles; risks (generally defined as beta or standard deviations) and returns are then calculated for the resulting value and growth portfolios. In the present paper, we aim to further contribute to the growing literature on the field by applying a method not previously tested on the Brazilian market. We build portfolios sorted by the price-to-earnings and price-to-book ratios alone and by a combination of both in order to assess value and growth stocks' risks and returns on the Brazilian stock market between 1989 and 2009. Furthermore, our risk analysis may be regarded as the paper's main contribution, since its approach departs from conventional risk concepts, as we not only test for beta: portfolios' returns are measured under different economic conditions. Results support a pervasive value premium in the Brazilian stock market. Risk analysis shows that this premium holds under every economic condition analyzed, suggesting that value stocks are indeed less risky. Beta proved not to be a satisfactory risk measure. Portfolios sorted by the price-to-earnings ratio yielded the best results.

scholarly journals Private Retirement Scheme Funds: Will the Asset Allocation Strategy Work For Retirees?

2019 ◽  
Vol 8 (1) ◽  
pp. 1-13 ◽  
Author(s):  
Wee Yeap Lau
Keyword(s):  
Asset Allocation ◽  
Fixed Income ◽  
Allocation Strategy ◽  
Average Growth ◽  
Fund Managers ◽  
Value Stocks ◽  
Strong Focus ◽  
Large Growth ◽  
Growth Stocks ◽  
High Degree

One of the principal-agent problems is the asymmetric information between fund managers and investors. To mitigate this issue, this study conducts the return-based style analysis on Private Retirement Scheme funds to their asset allocation strategy. Our results show: First, conservative funds have a strong focus on fixed income products rather than equity. Second, in terms of asset allocation to equity, on average, growth funds have a higher allocation to foreign equity of 16.28 per cent, followed by moderate funds of 9.18 per cent; Third, growth funds focus on large growth stocks, while moderate funds focus on large value stocks. However, three observations deserve our attention: First, a high degree of selection for the conservative fund will entail higher transaction cost; and second, in terms of the degree of style and selection, conservative funds do not vary much from growth funds. In other words, there is no distinct product differentiation between the two categories; Lastly, there is a wide disparity in asset allocation across the conservative funds. This implies some degree of risk-taking by some fund managers. These results suggest that the financial goals of retirees will be undermined if PRS funds do not focus on their mandate. 

scholarly journals Analisis Komparatif Tingkat Pengembalian Value Stocks dan Growth Stocks di Bursa Efek Indonesia

2019 ◽  
Vol 1 (1) ◽  
pp. 13-22
Author(s):  
Andre Prasetya Willim
Keyword(s):  
Comparative Analysis ◽  
Sampling Method ◽  
Stock Exchange ◽  
Portfolio Performance ◽  
Value Stocks ◽  
Growth Stocks ◽  
Small Growth ◽  
The Difference ◽  
Return Value ◽  
Portfolio Return

Purpose- This study aims to examine the difference in returns between portfolio value stocks and growth stocks with comparative analysis. Methods- The population of this research is all companies in the Indonesia Stock Exchange. Based on the results of the purposive sampling method, there were 396 companies that were sampled in this study with IPO criteria before 2011. There were four portfolios formed, namely small growth, small value, big growth and big value portfolios, each consisting of 59 companies. Portfolio performance in this study was measured by the Sharpe, Treynor and Jensen indices. Finding- The results showed a difference in portfolio return value stocks and growth stocks. Return portfolio value stocks are lower than growth stocks portfolios and portfolio performance value stocks are also lower than growth stocks portfolios.

Valuation of the worldwide commodities sector

2017 ◽  
Vol 34 (4) ◽  
pp. 555-579 ◽  
Author(s):  
Marcelo Bianconi ◽  
Joe Akira Yoshino
Keyword(s):  
Ordinary Least Squares ◽  
Equity Valuation ◽  
Content Type ◽  
Return On Equity ◽  
Value Stocks ◽  
Valuation Model ◽  
Volatility Index ◽  
Growth Stocks ◽  
The Impact ◽  
New Evidence

Purpose This paper aims to empirically investigate the market-to-book/return on equity valuation model. Design/methodology/approach The authors use a worldwide commodities sector panel of 6,323 firms from 69 countries with annual observations from 1999 to 2010 to estimate panel ordinary least squares (OLS), instrumental variables (IV) and quantile regressions. They also measure the impact of return on equity on market-to-book uncovering value versus growth and positive versus negative profitability dimensions. Findings The new evidence is that the impact of return on equity on market-to-book is time-varying and declining across the years in the sample. There is positive and strong persistence in the market-to-book of companies in this sector worldwide, but value stocks are more persistent than growth stocks. The coefficient of return on equity is positive at the 10th percentile of the market-to-book, but it becomes negative for growth stocks at 90th percentiles. Conditional on negative profitability, the coefficient of return on equity on market-to-book is negative for growth stocks. The effect of the S&P500 volatility index (VIX) is negative, significant and large in magnitude, but declines in absolute value, as the quantiles increase toward the upper 90th percentile. Practical implications The commodities sector is important for countries that depend on it for development. Originality/value The paper provides a rich panel data approach, and the market-to-book/return on equity valuation model is naturally applied to the commodities sector, as this sector tends to have more tangibles relative to intangibles.

scholarly journals Value and small firm premiums in the South African market

2014 ◽  
Vol 45 (4) ◽  
pp. 71-91
Author(s):  
S. Hammar
Keyword(s):  
South African ◽  
Small Firm ◽  
Size Effects ◽  
International Markets ◽  
The South ◽  
Significant Evidence ◽  
Value Stocks ◽  
Growth Stocks ◽  
Market Capitalisation

Numerous studies have identified both value and size effects existing in international markets. Fewer studies have been conducted that document the same effects in the South African market. In this study, portfolios were constructed based on four valuation multiples, as well as market capitalisation from 1999 2012. In this 14-year period it was found that value stocks predominantly outperformed growth stocks when defined by P/E or P/CF. Growth stocks outperformed value stocks when the portfolios were based on P/B and DY. Also, significant evidence of a small firm premium was identified on the JSE, regardless of the valuation multiple. Furthermore, small-cap value stocks generated the highest mean returns over the period. The study identifies the prevalence of these premiums on the JSE, but the comprehensive explanations for these anomalies remain inconclusive.

scholarly journals Value and growth stocks and shareholder value creation in Brazil

2019 ◽  
Vol 26 (3) ◽  
pp. 293-312
Author(s):  
Lucas Nogueira Cabral de Vasconcelos ◽  
Orleans Silva Martins
Keyword(s):  
Growth Rates ◽  
Shareholder Value ◽  
Explanatory Power ◽  
Accounting Data ◽  
Content Type ◽  
Value Stocks ◽  
The Us ◽  
The Usa ◽  
Growth Stocks ◽  
Dividend Growth

Purpose Investors label high (low) book-to-market (B/M) firms as value (growth) companies. The conventional wisdom supports that growth stocks grow faster than the value ones, creating greater shareholder value. The Purpose of this paper is to analyze how stocks of growth and value companies create value for their shareholders in Brazil, compared to the USA market. For this, the authors analyze three dimensions of return. Design/methodology/approach First, the authors perform portfolios to analyze the growth rates of shareholders’ return. Then, the authors perform regressions to study the explanatory power of the B/M in growth. The data come from Thomson Reuters Eikon database and the Brazilian Institute of Geography and Statistics. The authors select all non-financial firms with available data from 1997 to 2017. Findings The profitability of growth firms is higher than the value ones, in almost every year after the portfolios’ formation, with little variation. Contrary to the findings for the US market, growth companies in Brazil show higher dividend growth than value companies. Research limitations/implications It is possible that the database does not contain complete and entirely reliable accounting data, which may partially affect the results. Practical implications The findings contradict those exposed in the USA. The implications are the inverse of the US study: the duration-based explanation could be a vital factor for the value premium in the Brazilian stock market. Also, the findings support the standard valuation techniques and help the growth rates estimation in the valuation process (top-down approach). Originality/value This study is the first to compare the profitability and dividend growth of growth/value stocks in the Brazilian market. Overall, growth stocks have considerable profitability, and dividend growth compared to value stocks.

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