IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v36y2016icp123-133.html
   My bibliography  Save this article

The weakening value premium in the Australian and New Zealand stock markets

Author

Listed:
  • Chung, Yi-Tsai
  • Hsu, Chuan-Hao
  • Ke, Mei-Chu
  • Liao, Tung Liang
  • Chiang, Yi-Chein

Abstract

Some recent studies document that the value or size anomaly has reversed, weakened or disappeared in a number of major stock markets since the 1990s. Two risk-adjusted methods, the Sharpe ratio and the CAPM model, and a non-risk-adjusted method, the stochastic dominance (SD) approach, are used to examine whether the value premium still exists in two Oceanian stock markets, the Australian and New Zealand (NZ) markets, in recent times in this study. Our main findings demonstrate that the value premium of the Australian and NZ markets has become weak in the recent period.

Suggested Citation

  • Chung, Yi-Tsai & Hsu, Chuan-Hao & Ke, Mei-Chu & Liao, Tung Liang & Chiang, Yi-Chein, 2016. "The weakening value premium in the Australian and New Zealand stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 123-133.
    • Handle: RePEc:eee:pacfin:v:36:y:2016:i:c:p:123-133
    DOI: 10.1016/j.pacfin.2015.12.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X15300299
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2015.12.007?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:bla:jfinan:v:53:y:1998:i:6:p:1975-1999 is not listed on IDEAS
    2. Paul A. Gompers & Andrew Metrick, 2001. "Institutional Investors and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(1), pages 229-259.
    3. Abhay Abhyankar & Keng-Yu Ho & Huainan Zhao, 2009. "International value versus growth: evidence from stochastic dominance analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 222-232.
    4. Thierry Post, 2003. "Empirical Tests for Stochastic Dominance Efficiency," Journal of Finance, American Finance Association, vol. 58(5), pages 1905-1931, October.
    5. Chen, Nai-fu & Zhang, Feng, 1998. "Risk and Return of Value Stocks," The Journal of Business, University of Chicago Press, vol. 71(4), pages 501-535, October.
    6. Jim Y. F. Chin & Andrew K. Prevost & Aron A. Gottesman, 2002. "Contrarian Investing in a Small Capitalization Market: Evidence from New Zealand," The Financial Review, Eastern Finance Association, vol. 37(3), pages 421-446, August.
    7. Levy, Haim & Kroll, Yoram, 1979. "Efficiency Analysis with Borrowing and Lending: Criteria and Their Effectiveness," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 125-130, February.
    8. Horowitz, Joel L. & Loughran, Tim & Savin, N. E., 2000. "Three analyses of the firm size premium," Journal of Empirical Finance, Elsevier, vol. 7(2), pages 143-153, August.
    9. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    10. Huang, I-Hsiang, 2011. "The cyclical behavior of the risk of value strategy: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 404-419, September.
    11. La Porta, Rafael, 1996. "Expectations and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 51(5), pages 1715-1742, December.
    12. Charles E. Hyde & David Beggs, 2009. "Style timing with the value spread in Australia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 781-798, December.
    13. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    14. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
    15. La Porta, Rafael, et al, 1997. "Good News for Value Stocks: Further Evidence on Market Efficiency," Journal of Finance, American Finance Association, vol. 52(2), pages 859-874, June.
    16. John H. Cochrane, 1999. "New facts in finance," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 23(Q III), pages 36-58.
    17. Philip Gray & David Gallagher, 2014. "Stock weighting and nontrading bias in estimated portfolio returns," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(2), pages 467-503, June.
    18. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    19. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W, 1994. "Contrarian Investment, Extrapolation, and Risk," Journal of Finance, American Finance Association, vol. 49(5), pages 1541-1578, December.
    20. Philip Gharghori & Ronald Lee & Madhu Veeraraghavan, 2009. "Anomalies and stock returns: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(3), pages 555-576, September.
    21. Gharghori, Philip & Chan, Howard & Faff, Robert, 2009. "Default risk and equity returns: Australian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 17(5), pages 580-593, November.
    22. Philip Gharghori & Sebastian Stryjkowski & Madhu Veeraraghavan, 2013. "Value versus growth: Australian evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(2), pages 393-417, June.
    23. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    24. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. "Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
    25. Fong, Wai Mun, 2010. "A stochastic dominance analysis of yen carry trades," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1237-1246, June.
    26. Oliver Linton & Esfandiar Maasoumi & Yoon-Jae Whang, 2005. "Consistent Testing for Stochastic Dominance under General Sampling Schemes," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 735-765.
    27. repec:bla:jfinan:v:58:y:2003:i:5:p:1905-1932 is not listed on IDEAS
    28. Horowitz, Joel L. & Loughran, Tim & Savin, N. E., 2000. "The disappearing size effect," Research in Economics, Elsevier, vol. 54(1), pages 83-100, March.
    29. Roll, Richard, 1977. "A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory," Journal of Financial Economics, Elsevier, vol. 4(2), pages 129-176, March.
    30. Gharghori, Philip & Hamzah, Yusuf & Veeraraghavan, Madhu, 2010. "Migration and its contribution to the size and value premiums: Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(2), pages 177-196, April.
    31. Xiafei Li & Chris Brooks & Joëlle Miffre, 2009. "The Value Premium and Time-Varying Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(9-10), pages 1252-1272.
    32. Yuhang Xing, 2008. "Interpreting the Value Effect Through the Q-Theory: An Empirical Investigation," The Review of Financial Studies, Society for Financial Studies, vol. 21(4), pages 1767-1795, July.
    33. Eugene F. Fama & Kenneth R. French, 2006. "The Value Premium and the CAPM," Journal of Finance, American Finance Association, vol. 61(5), pages 2163-2185, October.
    34. Fama, Eugene F & French, Kenneth R, 1995. "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-155, March.
    35. Ding, David K. & Chua, Jia Leng & Fetherston, Thomas A., 2005. "The performance of value and growth portfolios in East Asia before the Asian financial crisis," Pacific-Basin Finance Journal, Elsevier, vol. 13(2), pages 185-199, March.
    36. Lu Zhang, 2005. "The Value Premium," Journal of Finance, American Finance Association, vol. 60(1), pages 67-103, February.
    37. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    38. Levy, Haim & Kroll, Yoram, 1978. "Ordering Uncertain Options with Borrowing and Lending," Journal of Finance, American Finance Association, vol. 33(2), pages 553-574, May.
    39. Petkova, Ralitsa & Zhang, Lu, 2005. "Is value riskier than growth?," Journal of Financial Economics, Elsevier, vol. 78(1), pages 187-202, October.
    40. Levy, Haim & Kroll, Yoram, 1976. "Stochastic Dominance with Riskless Assets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 11(5), pages 743-777, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    2. Maria Elisabete Neves & Mário Abreu Pinto & Carla Manuela de Assunção Fernandes & Elisabete Fátima Simões Vieira, 2021. "Value and growth stock returns: international evidence (JES)," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 29(5), pages 698-733, October.
    3. Fahad Ali & RongRong He & YueXiang Jiang, 2018. "Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market," Economies, MDPI, vol. 6(1), pages 1-24, February.
    4. Chikashi Tsuji, 2016. "Effects of the Japanese Stock Market on Canadian Value Stocks," Journal of Management and Strategy, Journal of Management and Strategy, Sciedu Press, vol. 7(2), pages 21-30, May.
    5. Harshita & Shveta Singh & Surendra S. Yadav, 2018. "Changing Nature of the Value Premium in the Indian Stock Market," Vision, , vol. 22(2), pages 135-143, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chang, Hao-Wen & Chiang, Yi-Chein & Ke, Mei-Chu & Wang, Ming-Hui & Nguyen, Tien-Trung, 2023. "Market efficiency of Asian stock markets during the financial crisis and non-financial crisis periods," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 312-329.
    2. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    3. M. Eskandar Shah & Sourafel Girm & R. Hudson, 2012. "Rationalizing the Value Premium under Economic Fundamentals in an Emerging Market," Working Papers 12010, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    4. Ebrahim, M. Shahid & Girma, Sourafel & Shah, M. Eskandar & Williams, Jonathan, 2014. "Rationalizing the value premium in emerging markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 51-70.
    5. Kwame Addae-Dapaah & James Webb & Kim Ho & Yan Tan, 2010. "Industrial Real Estate Investment: Does the Contrarian Strategy Work?," The Journal of Real Estate Finance and Economics, Springer, vol. 41(2), pages 193-227, August.
    6. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    7. Cooper, Michael J. & Gubellini, Stefano, 2011. "The critical role of conditioning information in determining if value is really riskier than growth," Journal of Empirical Finance, Elsevier, vol. 18(2), pages 289-305, March.
    8. Huang, I-Hsiang, 2011. "The cyclical behavior of the risk of value strategy: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 19(4), pages 404-419, September.
    9. Clark, Ephraim & Qiao, Zhuo, 2020. "The value premium puzzle, behavior versus risk: New evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 12-21.
    10. Praveen Kumar Das & S P Uma Rao, 2011. "Value Premiums And The January Effect: International Evidence," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(4), pages 1-15.
    11. Anderson, James H. & Korsun, Georges & Murrell, Peter, 2003. "Glamour and value in the land of Chingis Khan," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 34-57, March.
    12. Walkshäusl, Christian, 2015. "Equity financing activities and European value-growth returns," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 27-40.
    13. Martin Wallmeier, 2000. "Determinanten erwarteter Renditen am deutschen Aktienmarkt — Eine empirische Untersuchung anhand ausgewählter Kennzahlen," Schmalenbach Journal of Business Research, Springer, vol. 52(1), pages 27-57, February.
    14. Woltering, René-Ojas & Weis, Christian & Schindler, Felix & Sebastian, Steffen, 2018. "Capturing the value premium – global evidence from a fair value-based investment strategy," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 53-69.
    15. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    16. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    17. Ye, Qing & Turner, John D., 2014. "The cross-section of stock returns in an early stock market," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 114-123.
    18. Luis García‐Feijóo & Randy D. Jorgensen, 2010. "Can Operating Leverage Be the Cause of the Value Premium?," Financial Management, Financial Management Association International, vol. 39(3), pages 1127-1154, September.
    19. Ahmad, Tanveer & Shahzad, Syed Jawad Hussain & Rehman, Mobeen ur, 2014. "Risk or Sentiment: Value and Size Premium under Terrorism," MPRA Paper 60027, University Library of Munich, Germany.
    20. Aron A. Gottesman & Gady Jacoby & Huijing Li, 2017. "Value investing or investing in illiquidity? The profitability of contrarian investment strategies, revisited," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 3(1), pages 1-12, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:36:y:2016:i:c:p:123-133. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.