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Value and growth stocks and cyclical asymmetries

Author

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  • Angela J Black
  • David G McMillan

    (School of Economics, Finance and Business, University of Durham)

Abstract

This paper examines whether book-to-market sorted portfolios exhibit an asymmetric response to changes in economic conditions over the business cycle. It is initially shown that a simple strategy of holding a high book-to-market portfolio produces a greater cumulative excess return over a low book-to-market portfolio, but that most of this differential, although not all, can be explained by changes in macroeconomic conditions. Further results show that portfolio rates of return are indeed more responsive to changes in interest rates and money supply during a contractionary period, and that this responsiveness is typical for high book-to-market portfolios. Further, the average level of volatility is shown to be higher for high book-to-market portfolios, and such portfolios exhibit a greater responsiveness to shocks and changes in economic output. Evidence is reported, however, that a switching strategy can outperform a value strategy which, if it were to persist, would indeed cast doubt on the stability and continued existence of a value premium.

Suggested Citation

  • Angela J Black & David G McMillan, 2005. "Value and growth stocks and cyclical asymmetries," Journal of Asset Management, Palgrave Macmillan, vol. 6(2), pages 104-116, August.
    • Handle: RePEc:pal:assmgt:v:6:y:2005:i:2:d:10.1057_palgrave.jam.2240169
    DOI: 10.1057/palgrave.jam.2240169
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    Cited by:

    1. Golam Sarwar & Cesario Mateus & Natasa Todorovic, 2017. "A tale of two states: asymmetries in the UK small, value and momentum premiums," Applied Economics, Taylor & Francis Journals, vol. 49(5), pages 456-476, January.
    2. Nejla Bergaoui & Abdelwahed Trabelsi, 2016. "A State-Space Version of Fama and French’s Three-Factor Model: Evidence from the Tunisian Stock Exchange," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(11), pages 214-214, October.

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