The investment value of the value premium

Brailsford, Tim, Gaunt, Clive and O'Brien, Michael (2012) The investment value of the value premium. Pacific-Basin Finance Journal, 20 3: 416-437. doi:10.1016/j.pacfin.2011.12.008

Author Brailsford, Tim
Gaunt, Clive
O'Brien, Michael
Title The investment value of the value premium
Journal name Pacific-Basin Finance Journal   Check publisher's open access policy
ISSN 0927-538X
Publication date 2012-06-01
Sub-type Article (original research)
DOI 10.1016/j.pacfin.2011.12.008
Volume 20
Issue 3
Start page 416
End page 437
Total pages 22
Place of publication Amsterdam, Netherlands
Publisher Elsevier
Language eng
Formatted abstract
Value investment strategies are premised on research that value stocks outperform growth stocks. However, the research findings are dependent on the portfolio classification method that is used to sort stocks using the attributes of size and book-to-market ratios. Different stock markets contain different distributions of stocks, and in many markets, illiquidity concerns combined with a lack of investment scale, effectively create barriers to practical portfolio formations that align with the research. This study conducts a case study on one such market (Australia) and demonstrates that different methods of portfolio formation lead to different conclusions. For example, previous studies in Australia find evidence of the value premium only being present in the largest stocks, in contrast to the results from the US market. However, we find a value premium that is systematic across all size categories and generally increases inversely with size. Further, we find the well-documented size premium largely disappears once portfolios are formed that better represent feasible investment sets and once ‘penny dreadfuls’ are removed. Finally, asset pricing tests support the existence of a value premium in Australian stock returns when a more appropriate portfolio formation method is employed.
Keyword Value premium
Book-to-market effect
Fund performance
Q-Index Code C1
Q-Index Status Confirmed Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collections: Official 2013 Collection
UQ Business School Publications
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Citation counts: TR Web of Science Citation Count  Cited 11 times in Thomson Reuters Web of Science Article | Citations
Scopus Citation Count Cited 12 times in Scopus Article | Citations
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Created: Wed, 04 Apr 2012, 01:35:10 EST by Karen Morgan on behalf of UQ Business School