Rationalizing the Value Premium in Emerging Markets

M. Shahid Embrahim (), Sourafel Girma, M. Eskander Shah and Jonathan Williams
Additional contact information
M. Shahid Embrahim: Bangor University, UK
M. Eskander Shah: International Centre for Education in Islamic Finance
Authors registered in the RePEc Author Service: M. Shahid Ebrahim ()

No 13010, Working Papers from Bangor Business School, Prifysgol Bangor University (Cymru / Wales)

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)
Pages: 31 pages
Date: 2013-09
New Economics Papers: this item is included in nep-ara
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Journal Article: Rationalizing the value premium in emerging markets (2014)
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