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Year 2017, , 70 - 86, 30.06.2017
https://doi.org/10.17261/Pressacademia.2017.436

Abstract

References

  • Ammann, M. & Verhofen, M. (2006). The Effect of Market Regimes on Style Allocation, Financial Market and Portfolio Management, vol. 20, no. 3, pp. 309–337.
  • Banz, R. (1981). The relationship between returns and market value of common stocks. Journal of Financial Economics, vol. 9, no. 1, pp. 3-18.
  • Basu, S. (1977). Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis. Journal of Finance, vol. 32, no. 3, pp. 663-682.
  • Black,A. & McMillan, D. (2004). Non-linear Predictability of Value and Growth Stocks and Economic Activity, Journal of Business Finance & Accounting, vol. 31, no. 3-4, pp. 439-472.
  • Black,A. & McMillan, D. (2005). Value and Growth Stocks and Cyclical Asymmetries, Journal of Asset Management, vol. 6, no. 2, pp. 104-116.
  • Bauman, W.S., Conover, C.M., & Miller, R.E. (1998). Growth versus Value and Large-Cap versus Small-Cap Stocks in International Markets. Financial Analysis Journal, vol. 54, no. 2, pp. 75-89.
  • Chan, L., Hamao,Y., & Lakonishok, J. (1991). Fundamentals and Stock Returns in Japan. Journal of Finance, vol. 46, no. 5, pp. 1739-1764.
  • Chen, L. & Petkova, R. & Zhang, L. (2008). The Expected Value Premium, Journal of Financial Economics, vol. 87, no.2, pp. 269-280.
  • Fama, E.F., & French, K.R. (1992). The Cross-Section of Expected Stok Returns. Journal of Finance, vol. 47, no. 2, pp. 427-465.
  • Fama, E.F., & French, K.R. (2015). A Five-Factor Asset Pricing Model. Journal of Financial Economics, vol. 116, no. 1, pp. 1-22.
  • Fama, E. and MacBeth, D. (1973). Risk, Return, and Equilibrium: Empirical Tests. Journal of Political Economy, vol. 81, no. 3, pp. 607-636.
  • Gaudecker, H. (2015). How Does Household Portfolio Diversification Vary with Financial Sophistication and Financial Advice? Journal of Finance, vol. 70, no. 2, pp. 489-507.
  • Graham, B. (1949). Intelligent Investor. New York: HarperCollins.
  • Gulen, H. & Xing, Y. & Zhang, L. (2011). Value Versus Growth: Time-Varying Expected Stock Returns, Financial Management, vol. 40, no.2, pp. 381-407.
  • Lessard, R. (1976). World, Country, and Industry Relationships in Equity Returns-Imprecations for Risk Reduction Through International Diversification. Financial Analysis Journal, vol. 32, no. 1, pp. 32-38.
  • Markowitz,H. (1952). Portfolio Selection. Journal of Finance, vol. 7, no. 1, pp. 77-79.
  • Muller, C. (1999). Investor Overreaction on the Johannesburg Stock Exchange. Investment Analysts Journal, vol. 49, no. 28, pp. 5-17.
  • Novy-Marx, R. (2013). The Other Side of of Value: The Gross Profitability Premium. Journal of Financial Economics, vol.108, no.1, pp. 1-28.
  • Rousseau, R. & Rensburg, P. (2004). Time and the Payoff to Value Investing. Journal of Asset Management, vol. 4, no. 5, pp. 318-325.
  • Sareewiwatthana, P. (2013).Common Financial Ratios and Value Investing in Thailand. Journal of Finance and Investment Analysis, vol. 2, no. 3, pp. 3-18.
  • Sarwar, G. & Mateus, C. & Tadorovic, N. (2017). A Tale of Two States: Asymmetries in the UK Small, Value, and Momentum Premiums, Applied Economics, vol.49, no.5, pp 456-476
  • Slonik, B. H. (1974) Why Not Diversify Internationally Rather Than Domestically? Financial Analysis Journal, vol. 30, no. 4, pp. 48-54.

TIME REWARD OF VALUE INVESTING: EVIDENCE FROM THE SOUTHEAST ASIA STOCK MARKETS

Year 2017, , 70 - 86, 30.06.2017
https://doi.org/10.17261/Pressacademia.2017.436

Abstract

Purpose-
This study tests the effectiveness of
value investing and its relation to the length of investment horizon in
Malaysia, Singapore, and Thailand stock markets as well as the ASEAN market as
a whole. Two simple financial ratios, namely, Price-to-Earning (PE) ratio and
Price-to-Book (PE) ratio, are employed to see if they represent value premium
in a long-term investment. 

Methodology-
A simulation methodology that randomly selects an investment
date is applied which effectively eliminates market timing bias. Portfolios
sorted by PE and PB ratios are formed on a randomly chosen date and held for
different periods of time. Additionally, Fama-Mcbeth (1973) regression checks a
robustness of value premium of PE and PB ratios.

Findings-
Portfolios constructed with low PE and
PB ratio generate higher returns and form efficient portfolios with better
risk-return trade-off. In a long-term investment, PE and PB are indicators of
value premium. Also, the ASEAN Link provides an excellent opportunity for
international diversification.







Conclusion- Value investors are rewarded for holding
portfolios with low PE and PB stocks for a long period of time. Furthermore,
investors should construct portfolios with stocks from different markets to
fully take advantage of international diversification, which significantly reduces
investment risk.  

References

  • Ammann, M. & Verhofen, M. (2006). The Effect of Market Regimes on Style Allocation, Financial Market and Portfolio Management, vol. 20, no. 3, pp. 309–337.
  • Banz, R. (1981). The relationship between returns and market value of common stocks. Journal of Financial Economics, vol. 9, no. 1, pp. 3-18.
  • Basu, S. (1977). Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis. Journal of Finance, vol. 32, no. 3, pp. 663-682.
  • Black,A. & McMillan, D. (2004). Non-linear Predictability of Value and Growth Stocks and Economic Activity, Journal of Business Finance & Accounting, vol. 31, no. 3-4, pp. 439-472.
  • Black,A. & McMillan, D. (2005). Value and Growth Stocks and Cyclical Asymmetries, Journal of Asset Management, vol. 6, no. 2, pp. 104-116.
  • Bauman, W.S., Conover, C.M., & Miller, R.E. (1998). Growth versus Value and Large-Cap versus Small-Cap Stocks in International Markets. Financial Analysis Journal, vol. 54, no. 2, pp. 75-89.
  • Chan, L., Hamao,Y., & Lakonishok, J. (1991). Fundamentals and Stock Returns in Japan. Journal of Finance, vol. 46, no. 5, pp. 1739-1764.
  • Chen, L. & Petkova, R. & Zhang, L. (2008). The Expected Value Premium, Journal of Financial Economics, vol. 87, no.2, pp. 269-280.
  • Fama, E.F., & French, K.R. (1992). The Cross-Section of Expected Stok Returns. Journal of Finance, vol. 47, no. 2, pp. 427-465.
  • Fama, E.F., & French, K.R. (2015). A Five-Factor Asset Pricing Model. Journal of Financial Economics, vol. 116, no. 1, pp. 1-22.
  • Fama, E. and MacBeth, D. (1973). Risk, Return, and Equilibrium: Empirical Tests. Journal of Political Economy, vol. 81, no. 3, pp. 607-636.
  • Gaudecker, H. (2015). How Does Household Portfolio Diversification Vary with Financial Sophistication and Financial Advice? Journal of Finance, vol. 70, no. 2, pp. 489-507.
  • Graham, B. (1949). Intelligent Investor. New York: HarperCollins.
  • Gulen, H. & Xing, Y. & Zhang, L. (2011). Value Versus Growth: Time-Varying Expected Stock Returns, Financial Management, vol. 40, no.2, pp. 381-407.
  • Lessard, R. (1976). World, Country, and Industry Relationships in Equity Returns-Imprecations for Risk Reduction Through International Diversification. Financial Analysis Journal, vol. 32, no. 1, pp. 32-38.
  • Markowitz,H. (1952). Portfolio Selection. Journal of Finance, vol. 7, no. 1, pp. 77-79.
  • Muller, C. (1999). Investor Overreaction on the Johannesburg Stock Exchange. Investment Analysts Journal, vol. 49, no. 28, pp. 5-17.
  • Novy-Marx, R. (2013). The Other Side of of Value: The Gross Profitability Premium. Journal of Financial Economics, vol.108, no.1, pp. 1-28.
  • Rousseau, R. & Rensburg, P. (2004). Time and the Payoff to Value Investing. Journal of Asset Management, vol. 4, no. 5, pp. 318-325.
  • Sareewiwatthana, P. (2013).Common Financial Ratios and Value Investing in Thailand. Journal of Finance and Investment Analysis, vol. 2, no. 3, pp. 3-18.
  • Sarwar, G. & Mateus, C. & Tadorovic, N. (2017). A Tale of Two States: Asymmetries in the UK Small, Value, and Momentum Premiums, Applied Economics, vol.49, no.5, pp 456-476
  • Slonik, B. H. (1974) Why Not Diversify Internationally Rather Than Domestically? Financial Analysis Journal, vol. 30, no. 4, pp. 48-54.
There are 22 citations in total.

Details

Journal Section Articles
Authors

Yosuke Kakinuma This is me

Publication Date June 30, 2017
Published in Issue Year 2017

Cite

APA Kakinuma, Y. (2017). TIME REWARD OF VALUE INVESTING: EVIDENCE FROM THE SOUTHEAST ASIA STOCK MARKETS. Journal of Economics Finance and Accounting, 4(2), 70-86. https://doi.org/10.17261/Pressacademia.2017.436

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