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Expectation Errors in European Value-Growth Strategies

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  • Christian Walkshäusl

Abstract

This article tests Piotroski and So’s (2012) market expectation errors approach to value-growth investing in European equity markets. As in the USA, European value-growth returns are concentrated among firms with existent market expectation errors, but absent among firms without such errors which can be ex ante identified by interacting book-to-market with FSCORE, an accounting-based measure of the firm’s fundamental strength. The returns to an expectation errors-based value-growth strategy are highly persistent for up to three years after portfolio formation, pervasive among large firms, and cannot be explained by common risk factors. However, consistent with a mispricing-based interpretation, prior external financing activities significantly influence these market expectation errors. A financing-based misvaluation factor can explain the return behavior of value-growth strategies formed along market expectations errors.

Suggested Citation

  • Christian Walkshäusl, 2017. "Expectation Errors in European Value-Growth Strategies," Review of Finance, European Finance Association, vol. 21(2), pages 845-870.
    • Handle: RePEc:oup:revfin:v:21:y:2017:i:2:p:845-870.
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    File URL: http://hdl.handle.net/10.1093/rof/rfw012
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    References listed on IDEAS

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    1. Holger Daske & Luzi Hail & Christian Leuz & Rodrigo Verdi, 2008. "Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 1085-1142, December.
    2. Piotroski, JD, 2000. "Value investing: The use of historical financial statement information to separate winners from losers," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 1-41.
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    Cited by:

    1. St¨¦phane Chr¨¦tien & Manel Kammoun, 2019. "Mutual Fund Styles and Clientele-Specific Performance Evaluation," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(12), pages 1-89, December.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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