Value and growth stock returns: international evidence (JES)

Purpose This study aims to analyze the returns obtained from companies with strong growth potential (growth stocks) and the returns from companies with quite low stock prices, but with high value (value stocks). Design/methodology/approach The sample comprises monthly data, from January 2002 to December 2016, from seven countries, Germany, France, Switzerland, the UK, Portugal, the USA and Japan. The authors have used linear regression models for three different periods, the pre-crisis, subprime crisis and post-crisis period. Findings The results point out that the performance of value and growth stocks differs from different periods surrounding the global financial crisis. In fact, for six countries, value stocks outperformed growth stocks in the period that precedes the subprime crisis and during the crisis, this tendency remained only for France, Portugal and Japan. This trend changed in the period following the crisis. The results also show that investor sentiment has a robust significance in value and growth stock returns, mostly in the period before the crisis, highlighting that the investor sentiment is more significant in the moments that the value stocks outperformed. Originality/value As far as the authors know, this is the first work that, taking into account the future research lines of Capaul et al. (1993), investigates whether the results obtained by those authors remain current, meeting the authors’ challenge and covering the gap of recent studies on the performance of value and growth stocks. Besides, the authors have introduced a new country, heavily punished by both the global financial crisis and the sovereign debt crisis to understand whether there are significant differences in investment styles and whether this is related to the different economies. Also, in this context, the authors were pioneers in adding investor sentiment as an exogenous variable in the influence of stock returns.

The Impact of Business Cycles, Stock Market Phases and Crisis on the Value Premium: The Indian Experience

Purpose :This paper is an attempt to explore the relationship between the value premium and expected stock returns in the Indian stock market and evaluates whether the value premium disappears or not when the different economic conditions (Boom & Recession), market conditions (Bull & Bear) and 2008 Global financial crisis are considered. Methodology: The annual data of 500 companies belonging to BSE-500 from 1999- 2017 was collected and ten portfolios were constructed and sorted using six valuation proxies (P/B, P/E, D/P/, CF/P, S/P and EV/PBDITA). Standard CAPM and Dual beta market model were employed. Findings: The empirical results confirm that irrespective of market conditions, value stock portfolios surpass growth stock portfolios in the Indian stock market by delivering significant abnormal returns. Practical implications: The paper holds important implications for asset pricing literature and investors. The higher returns generated by value stocks during the crisis and recession period imply that investors can put faith in the value stocks during times of adversity. The future value of an investment is a function of its present price. The lower the price, the higher the returns will be. Therefore, value stocks are good investments whether it is boom or recession, bull or bear, crisis or non-crisis periods. Originality: The paper is first of its kind to study the impact of business cycles, stock market phases and crisis on the value premium in the Indian stock market. The paper contributes to portfolio management and asset pricing literature for an emerging market.

The Value of GARP Investing: Evidence from the Indonesian Stock Exchange

The purpose of this study was to examine whether or not the GARP in selecting the stock portfolios can provide a more stable growth rate of return when compared to the value stock and growth stock as well as to examine the stock return on value stock and growth stock based on the changes in its fundamentals. The population in this study was all companies listed on the Indonesia Stock Exchange (known as IDX) in the period of 2015-2019. The samples were selected using a comparative-quantitative approach and consisted of 20 companies: seven companies included in the value stock portfolio category and ten companies included in the portfolio category. Growth stock and three companies were included in the GARP's stock portfolio category. The formation of stock portfolios in the company's fundamentals was based on price to book value ratio, price-earnings ratio, and price-earnings growth ratio. This study used the ANOVA method equipped with SPSS by performing four tests: Homogeneity of Variance, Between-Subject, Post Hoc, and Homogenous Subset test. The results of this study show that there were differences in the portfolio return of value stocks, growth stocks, and GARP stocks on the Indonesia Stock Exchange in the period of 2015-2019. Meanwhile, the GARP investment strategy was stable for the growth when compared to the value investment and growth investment in the Indonesia Stock Exchange in the period of 2015-2019. The implementation of GARP concept in managing the investment portfolios and criteria for choosing the stocks have the profitable growth, first in forming the GARP because investors in the stock market tend to expect obtaining high investment returns with a limited time horizon. The implementation of GARP concept has prevented the investors from the value trap because the GARP strategy is a hybrid solution for the growth stock and value stock, thus. The GARP investors will experience a combination of returns

Do good fundamentals generate alpha?

Objective: To verify abnormal risk-adjusted returns in Brazilian stock portfolios formed according to the F-Score that indicates the presence of good fundamentals. Method: The sample has 146 companies per year on average, includes the period of adoption of the International Financial Reporting Standards (IFRS) from July 2008 to June 2018 and uses equally weighted portfolios formed at the end of June of each year with information from the previous year. Results: The high F-Score portfolio showed greater average returns, lower beta, and a positive and significant alpha that disappeared in the sub-period initiating after the full adoption of IFRS. Significant coefficients for the small capitalization risk premium and egalitarian weighting suggest that large companies do not dominate its performance. High and low F-Score portfolios cannot be characterized as value stocks. The low F-Score portfolio displayed a negative and significant coefficient for the moment factor, suggesting persistence of negative returns. Contributions: Portfolios with high F-Score may have less chance of catastrophic returns. The technique can be employed by less sophisticated investors to build defensive portfolios of companies with good fundamentals.