The Value Premium for Small-Capitalization Stocks

Dhatt, Manjeet S.; Kim, Yong H.; Mukherji, Sandip

doi:10.2469/faj.v55.n5.2300

Cited by 19 publications

(11 citation statements)

References 9 publications

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“…This observation is consistent with previous studies, which show that the value premium is strongest in the small-cap universe [Kothari et al, 1995;Loughran, 1997;Dhatt et al, 1999;Fama, French, 2006;Asness et al, 2015]. For the value weighted portfolios, the high B/M small-caps earned 1.34% excess log-returns monthly, whereas the low-B/M small-caps earned 0.24%.…”

Section: Results and Interpretationsupporting

confidence: 92%

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Zaremba

Konieczka

2017

International Journal of Management and Economics

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This paper tests the performance of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor and Carhart four-factor models on the Polish market. We use stock level data from April 2001 to January 2014 and find strong evidence for value and momentum effects, but only weak evidence for size premium. We formed portfolios double-sorted on size and book-to-market ratios, as well as on size and momentum, and we explain their returns with the above-mentioned asset pricing models. The CAPM is rejected and the three-factor and four-factor models perform well for the size and B/M sorted portfolios, but fail to explain returns on the size and momentum sorted portfolios. With the exception of the momentum factor, local Polish factors are not correlated with their European and global counterparts, suggesting market segmentation. Finally, the international value, size and momentum factors perform poorly in explaining crosssectional variation in stock returns on the Polish market.

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Section: Results and Interpretationsupporting

confidence: 92%

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Zaremba

Konieczka

2017

International Journal of Management and Economics

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“…Furthermore, this r esult was also confirmed internationally by Bauman et al (1998). Bauman et al (1998) and Dhatt et al (1999) found that small-cap value stocks outperformed small-cap growth stocks, which also occurred, on average, in this study. Expanding this result to all of the multiples, it appears that holding a small stock will generate excess returns regardless of the ratio, suggesting that size is independent of the valuation multiple.…”

Section: The Size Premiumsupporting

confidence: 82%

Value and small firm premiums in the South African market

Hammar

2014

SAJBM

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Numerous studies have identified both value and size effects existing in international markets. Fewer studies have been conducted that document the same effects in the South African market. In this study, portfolios were constructed based on four valuation multiples, as well as market capitalisation from 1999 2012. In this 14-year period it was found that value stocks predominantly outperformed growth stocks when defined by P/E or P/CF. Growth stocks outperformed value stocks when the portfolios were based on P/B and DY. Also, significant evidence of a small firm premium was identified on the J SE, regardless of the valuation multiple. Furthermore, small-cap value stocks generated the highest mean returns over the period. The study identifies the prevalence of these premiums on the J SE, but the comprehensive explanations for these anomalies remain inconclusive.

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“…By contrast, based on the pooled results for the U.S. sample data, the E/P‐based value portfolio return was higher in seven out of 14 cases. However, it should be noted that samples used as bases of quantile divisions based on B/P and E/P are not necessarily identical, because in many studies, negative earnings’ stocks have been excluded from the E/P‐based division, whereas they have been included in the B/P‐based division unless their book values have also been negative (e.g., see Fama and French, ; Dhatt et al ., ).…”

Section: Book‐to‐price (B/p) Anomalymentioning

confidence: 97%

“…Dhatt et al . () found that for small‐cap U.S. stocks, S/P was a better indicator of value than B/P, which in turn was superior to E/P. The same authors also reported the superiority of S/P over B/P, E/P, and CF/P in terms of both value premium and value portfolio returns for the sample of larger‐cap U.S. stocks, although the composite value measure based on combining the S/P and E/P criteria generated marginally higher returns (Dhatt et al ., ).…”

Section: Sales‐to‐price (S/p) Anomalymentioning

confidence: 97%

“…To the best of our knowledge, Dhatt et al . () were the first to report the results of performance comparisons between value portfolios based on both individual valuation ratios and a composite value criterion. The authors formed tertile portfolios of stocks included in the Russell 2000 Index, which is the commonly used U.S. small‐cap benchmark, on E/P, B/P, and S/P.…”

Section: Evidence Of the Benefits Of Composite Value Criteriamentioning

confidence: 99%

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A Closer Look at Value Premium: Literature Review and Synthesis

Pätäri

Leivo

2015

Journal of Economic Surveys

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Abstract. This paper provides a systematic review of value premium literature that examines the performance difference between value and growth stocks and the possible reasons for it. We compare and synthesize the results from the different regional stock markets and different sample periods. The literature is categorized according to stock selection criteria that are based on either individual valuation ratios, such as E/P, B/P, D/P, S/P, CF/P, and enterprise value-based multiples, or composite value criteria that aim to capture more than one dimension of relative value simultaneously or combine them with other classification criteria. We also compare the efficacy of various selection criteria to each other and synthesize the literature on the explanations for the value anomalies. The overall evidence shows that the best criterion varies over time and across the markets. The relative efficacy of different valuation criteria also seems to depend on numerous methodological choices. Recent studies have given mild evidence that combining traditional valuation ratios either with each other or with some financial statement variables could at least in some cases enhance the value premium, although very few studies have provided transparent comparisons between the results based on individual valuation ratios and those based on composite value criteria.

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The Value Premium for Small-Capitalization Stocks

Cited by 19 publications

References 9 publications

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Value and small firm premiums in the South African market

A Closer Look at Value Premium: Literature Review and Synthesis

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