Value stocks verses growth stocks perfromance in emerging markets
This thesis examines the performance of value and growth stocks during the ten year period June 2006 to 2016 within five emerging markets countries namely South Africa, Nigeria, Brazil, India and Argentina. Value stocks are those stocks that trade at low prices in comparison to its fundaments value of the company and growth stocks are those stocks that trade at high prices compared to the company’s fundaments. The portfolios of value and growth stocks are created in the five abovementioned countries. The performance of value and growth stocks are studied by constructing portfolios on the basis of price-to-earnings, price-to-book, price-to-cash flow and price-earnings-growth. The data to calculate these price-multiples are derived from the audited statement of comprehensive income, statement of financial position and statement of cash flow of the companies. Trade data on listed stock, listed indices, cash dividends and risk-free rates are derived from mainly from Bloomberg.com and Morningstar.com. To classify stocks to be included in value or growth portfolios, a 30 percent cut-off is used. The portfolio returns and risk, price-multiples are studied as well to research whether one price-multiple provide higher return than others. Total return and risk-adjusted measures are studied by means of average daily returns to scrutinize which class of stocks, value or growth, provided the highest return. A regression analysis is performed to study if the Capital Asset Pricing model and a two-factor model can elaborate on the excess returns yield by value and growth portfolios. The findings are that value stock portfolio provide a higher total return than growth stocks portfolio. The value stocks as compared to growth stocks, also provide a fraction of higher return per unit of risk, as measured by Jensen’s Alpha and Treynor. The study also shows that value portfolios classified on price-to-book yield higher returns than portfolios constructed on other price multipliers. The regression analyses show that the CAPM two-factor model is able to explain the excess returns on value and growth portfolios. The beta coefficients of value stocks are higher than growth stocks, which is consistent with the general theory that higher betas found in stocks should, by definition, produce higher returns, this also suggest that the reason behind the of outperformance by value stocks over growth stocks is a compensation of risk. While value and growth stocks are studied over a period of 10 years on five emerging markets there is some limitations and implications for future research exist. One major limitation concern is the sample size of 5 emerging markets out of 152 emerging and developing countries as listed by the International Monetary Fund. Therefore reaching statistical conclusion makes it difficult to generalize towards other countries.
A dissertation submitted in fulfillment of the requirements for the degree in Masters in Management Finance and Investment , University of the Witwatersrand, Johannesburg, 2017
Ngcongo, Nokukhanya Baverly, (2018) Value stocks versus growth stocks performance in emerging markets, University of the Witwatersrand, Johannesburg, https://hdl.handle.net/10539/26198