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Performance of Value and Size based Strategies in the Italian Stock Market

Anna Pirogova and Antonio Roma ()

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: This paper investigates the performance of size- and value-based strategies in the Italian Stock Market in the period 2000 - 2018. Previous research (Beltratti and Di Tria (2002)) argued the impossibility to define properly value sorted portfolios due to the inaccuracy of book-to-market ratios available for Italian listed stocks. The Datastream database, which was commonly used by previous authors, contains errors which may undermine the result of the analysis. Using accurate data provided by Borsa Italiana and Mediobanca, we implement portfolios sorting based on value and growth stocks, in order to asses the relevance of the value factor in the Italian Stock Market. We nd that the CAPM fails to explain the cross section of returns on the different strategies while the Fama and French (1993) three-factor model provides a better fit. The results show that all three factors are significant in explaining Italian stock returns during the sample period. Unlike previous studies, which either found no value effect at all (Barontini (1997); Aleati et al., (2000)) or no clear cut results when testing the book- to-market variable (Bruni et al. (2006); Rossi (2012)), we find that the value factor is statistically significant and the associated risk premium is of a considerable size.

JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019-10
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Journal Article: Performance of value‐ and size‐based strategies in the Italian stock market (2020) Downloads
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