Do Value Stocks Earn Higher Returns than Growth Stocks in an Emerging Market? Evidence from the Istanbul Stock Exchange

Abstract

We study the comparison of returns between value and growth, and between small and large capitalization portfolios for an emerging market, the Istanbul Stock Exchange (ISE). We show that growth portfolios have superior performance over value portfolios. Thus, our results do not confirm the evidence from most developed and emerging markets. Moreover, inconsistent with the evidence from developed markets, monthly and annually small-large portfolio spreads favour large stocks. These results reflect that the structure of the market and the fundamental of stocks traded in the ISE differ from markets around the world. Time series regression results show that the average returns on value and growth portfolios are not sensitive to market movements. Size and B/M risk factors along with market risk premium produce better descriptions of the returns on value and growth portfolios.

Cross-Sectional Variation in Stock Returns due to Leverage in Exchange Istanbul

“…Size effect is the highest for the high leverage firms. Similar with Aydogan and Gursoy (2000) and Gonenc and Karan (2003) findings do not support value effect in Exchange Istanbul.…”

“…Aksu and Önder (2003) apply F-F three factor model to ISE and find significant size effect on returns. Gonenc and Karan (2003) test book-to-market and size effect on returns in ISE and find no evidence of value premium in ISE; also they report higher average return for large cap stocks. Bildik and Gulay (2007) investigate the momentum and contrarian effects in ISE and report that there are significant abnormal returns for contrarian strategy about 15% annually.…”

Liquidity and stock returns: Evidence from a pure order-driven market using a new liquidity proxy

“…In contrast, this study focuses on the 1990s, a time when the strong bull market favoured growth stocks over value stocks so the results are unsurprising. They are also consistent with Gonenc and Karan (2003) who used data for the 1993-1998 period from the Istanbul Stock Exchange.…”

Leverage and Stock Returns: Evidence from Istanbul Stock Exchange

“…Aksu and Önder (2003) demonstrated significant size effect on returns by applying F-F three factor model to BIST. Gonenc and Karan (2003) tested book-to-market and size effect on returns in BIST and find no evidence of significant relationship in BIST.…”