Value versus growth stocks and earnings growth in style investing strategies in Euro-markets

Salim Chahine ()

Journal of Asset Management, 2008, vol. 9, issue 5, No 5, 347-358

Abstract: Abstract While recent studies have concentrated on why value stocks outperform growth stocks, this paper investigates whether these strategies are sensitive to earnings growth level. Empirical tests are conducted based on returns strategy and asset pricing analysis. Controlling for Fama and French (1993) risk factors, empirical results provide evidence that a value strategy with a high earnings growth rate, that is, undervalued value stocks, outperformed both value and growth strategies in the Euro zone from 1988 to 2003. Empirical findings suggest that earnings growth has a valuable effect in determining the performance of value- versus growth-stocks portfolios. Further investigations confirm the positive effect of earnings-per-share momentum in undervalued value stocks, whereas there is no significant effect in overvalued growth stocks.

Keywords: value stocks; growth stocks; earnings growth; CAPM; multifactor model (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/jam.2008.31

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