scholarly journals Value-Growth Spread: Evidence From The Johannesburg Stock Exchange

2014 ◽  
Vol 30 (6) ◽  
pp. 1939
Author(s):  
Kathleen Hodnett
Keyword(s):  
Risk Premium ◽  
Stock Exchange ◽  
Market Risk ◽  
Price Ratio ◽  
Market Risk Premium ◽  
Forward Market ◽  
Johannesburg Stock Exchange ◽  
Growth Stocks ◽  
Near Term ◽  
Value Growth

<p>This study attempts to establish the cyclical nature of the value-growth spread on the Johannesburg Stock Exchange (JSE) over the period from 1 January 1997 through 31 December 2013, and subsequently undertakes to determine if the recent value-growth spread could be useful to forecast the near-term market risk premium. The three value-growth benchmarks used to classify value and growth stocks include earnings/price ratio (E/P), book/price ratio (B/P) and sales/price ratio (S/P). The ratio between the median S/P ratio for the value portfolio versus the growth portfolio is found to be the highest and most volatile over the examination period, which suggests that the relative valuation of value and growth stocks based on S/P could be cyclical and reflective of the market sentiments and degrees of risk aversion. The prediction of forward market risk premium using the trailing average of S/P value-growth spread achieved the highest R-squared of 26.79%. In addition, predicting forward market risk premium using the other two value-growth spreads is also statistically significant. Examining the coefficients of the regressions reveals that although a significant portion of the forward market risk premium is left unexplained, there exists a significantly positive correlation between recent value-growth spreads and near-term market risk premiums on the JSE. This implies that higher future reward could be expected for equity investments when the value risk premium is higher than its historical average, and vice versa.</p>

The Cross Section of Expected Returns with MIDAS Betas

2011 ◽  
Vol 47 (1) ◽  
pp. 115-135 ◽  
Author(s):  
Mariano González ◽  
Juan Nave ◽  
Gonzalo Rubio
Keyword(s):  
Cross Section ◽  
Risk Premium ◽  
Market Risk ◽  
Ordinary Least Squares ◽  
Mixed Data ◽  
Expected Returns ◽  
Data Sampling ◽  
Cross Sectional ◽  
Market Risk Premium ◽  
The Cross

AbstractThis paper explores the cross-sectional variation of expected returns for a large cross section of industry and size/book-to-market portfolios. We employ mixed data sampling (MIDAS) to estimate a portfolio’s conditional beta with the market and with alternative risk factors and innovations to well-known macroeconomic variables. The market risk premium is positive and significant, and the result is robust to alternative asset pricing specifications and model misspecification. However, the traditional 2-pass ordinary least squares (OLS) cross-sectional regressions produce an estimate of the market risk premium that is negative, and significantly different from 0. Using alternative procedures, we compare both beta estimators. We conclude that beta estimates under MIDAS present lower mean absolute forecasting errors and generate better out-of-sample performance of the optimized portfolios relative to OLS betas.

An Empirical Examination of Ex AnteEstimates of the Market Risk Premium

2014 ◽  
Vol 23 (2) ◽  
pp. 51-58 ◽  
Author(s):  
Austin Murphy ◽  
Liang Fu ◽  
Terry Benzschawel
Keyword(s):  
Risk Premium ◽  
Market Risk ◽  
Empirical Examination ◽  
Market Risk Premium

scholarly journals An empirical relationship between company growth and the market price of securities listed on the Johannesburg Stock Exchange

1992 ◽  
Vol 23 (3/4) ◽  
pp. 63-68 ◽  
Author(s):  
Narendra Bhana
Keyword(s):  
Stock Exchange ◽  
Empirical Relationship ◽  
Market Price ◽  
Selection Procedure ◽  
High Growth ◽  
Return On Equity ◽  
Johannesburg Stock Exchange ◽  
Investment Returns ◽  
Growth Stocks ◽  
Future Growth

There appears to be a widespread belief among investors that growth companies and growth stocks are identical. The objective in this article is to determine if the shares of high growth companies listed on the Johannesburg Stock Exchange (JSE) provided superior investment returns during the period 1974-88. The empirical evidence revealed that high growth companies underperform because the market overestimates their future growth and future return on equity, as a result their shares tended to have overvalued price-earnings ratios. Therefore, the investor will incur substantial losses if their results are below expectations. It is hypothesized that a cognitive bias may be responsible for the erroneous identification of growth stocks as shares of growth companies. Company results have a tendency to regress to the mean as the underlying economic forces attract new entrants to attractive markets and leave low-growth businesses. Because of this tendency, companies that have provided high growth in the past may prove to be inferior future investments. Past financial attributes cannot be relied upon to predict future returns. The investor should integrate a rigorous valuation model into the share selection procedure so that estimates of future growth and profitability can be used to make an estimate of expected returns.Dit blyk dat daar 'n algemene mening onder beleggers bestaan dat groeiende maatskappye en groeiende effekte een en dieselfde is. Die doel van hierdie ondersoek is om te bepaal of die aandele van maatskappye wat op die Johannesburgse Effektebeurs genoteer word en wat 'n hoe groei toon, hoer opbrengste gelewer het gedurende die tydperk 1974-88. Die empiriese bevindings dui daarop dat hoegroeimaatskappye onderpresteer, omrede beleggers hul toekomstige groei en toekomstige opbrengste oorskat, met die gevolg dat hul aandele oorgewaardeerde prysverdienste-verhoudings toon. As gevolg hiervan strek dit tot nadeel van die belegger as die uitslae nie aan die verwagtings voldoen nie. Die hipotese word gemaak dat 'n bewussynsvooroordeel moontlik daarvoor verantwoordelik is dat groei-aandele foutiewelik as aandele van groeiende maatskappye geindentifiseer word. Maatskappy-uitslae het die neiging om terug te keer tot die gemiddelde, na gelang die onderliggende ekonomiese kragte nuwe deelnemers na aantreklike markte lok, weg van laegroeimarkte. As gevolg van die neiging mag maatskappye wat in die verlede hoe groei getoon het, swak toekomstige beleggings wees. Daar kan dus nie op voormalige finansiele kenmerke vertrou word om toekomstige opbrengste te voorspel nie. Die belegger behoort 'n streng skattingsmodel in sy keuse van effekte te integreer sodat skattings van toekomstige groei en winsgewendheid gebruik kan word om 'n skatting van verwagte opbrengste te maak.

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