Rationalizing the value premium in emerging markets

M. Shahid Ebrahim (), Sourafel Girma, Mohamed Shah and Jonathan Williams

Journal of International Financial Markets, Institutions and Money, 2014, vol. 29, issue C, 51-70

Abstract: We reconfirm the presence of value premium in emerging markets. Using the Brazil–Turkey–India–China (BTIC) grouping during a period of substantial economic growth and stock market development, we attribute the premium to the investment patterns of glamour firms. We conjecture based on empirical evidence that glamour firms hoard cash, which delays undertaking of growth options, especially in poor economic conditions. Whilst this helps to mitigate business risk, it lowers market valuations and drives down expected returns. Our evidence supports arguments that the value premium is explained by economic fundamentals rather than a risk factor that is common to all firms.

Keywords: Asset pricing; Growth (i.e., glamour) stocks; Multifactor models; Real options; Value (i.e., unspectacular) stocks (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Working Paper: Rationalizing the Value Premium in Emerging Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:29:y:2014:i:c:p:51-70

DOI: 10.1016/j.intfin.2013.11.005

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