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Rationalizing the value premium in emerging markets

Ebrahim, M. Shahid; Girma, Sourafel; Shah, M. Eskandar; Williams, Jonathan

Authors

M. Shahid Ebrahim

SOURAFEL GIRMA sourafel.girma@nottingham.ac.uk
Professor of Industrial Economics

M. Eskandar Shah

Jonathan Williams



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.

Journal Article Type Article
Publication Date Mar 10, 2014
Journal Journal of International Financial Markets, Institutions and Money
Print ISSN 1042-4431
Electronic ISSN 1042-4431
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 29
APA6 Citation Ebrahim, M. S., Girma, S., Shah, M. E., & Williams, J. (2014). Rationalizing the value premium in emerging markets. Journal of International Financial Markets, Institutions and Money, 29, https://doi.org/10.1016/j.intfin.2013.11.005
DOI https://doi.org/10.1016/j.intfin.2013.11.005
Keywords Asset Pricing, Growth (i.e., Glamour) Stocks, Multifactor Models, Real Options, Value (i.e., Unspectacular) Stocks.
Publisher URL http://www.sciencedirect.com/science/article/pii/S104244311300098X?via%3Dihub
Copyright Statement Copyright information regarding this work can be found at the following address: http://eprints.nottingh.../end_user_agreement.pdf

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://eprints.nottingham.ac.uk/end_user_agreement.pdf





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