Publication:
Rationalizing the value premium in emerging markets
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Date
2014
SDG:
Abstract
We reconfirm the presence of value premium in emerging markets. Using the Brazil-Turkey-India-China (BTIC) grouping during a period of substantial economic growth and stock market development, we attribute the premium to the investment patterns of glamour firms. We conjecture based on empirical evidence that glamour firms hoard cash, which delays undertaking of growth options, especially in poor economic conditions. Whilst this helps to mitigate business risk, it lowers market valuations and drives down expected returns. Our evidence supports arguments that the value premium is explained by economic fundamentals rather than a risk factor that is common to all firms.
Keywords
Asset pricing , Multifactor models , Real options , Value (i.e., unspectacular) stocks , Growth (i.e., glamour) stocks
Citation
Ebrahim, M., Girmab, S., Mohd Rasid, M. E. S., & William, J. (2014). Journal of International Financial Markets, Institutions and Money, 29, pp. 51–70.
Publisher
Elsevier