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Rationalizing the value premium in emerging markets

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

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Authors

Sourafel Girma

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.

Citation

Ebrahim, M., Girma, S., Shah, M. E., & Williams, J. (2014). Rationalizing the value premium in emerging markets. Journal of International Financial Markets, Institutions and Money, 29, 51-70. https://doi.org/10.1016/j.intfin.2013.11.005

Journal Article Type Article
Acceptance Date Nov 24, 2013
Publication Date Mar 1, 2014
Deposit Date Sep 22, 2014
Publicly Available Date Apr 20, 2015
Journal Journal of International Financial Markets, Institutions and Money
Print ISSN 1042-4431
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 29
Pages 51-70
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.
Public URL https://durham-repository.worktribe.com/output/1420721

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Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of International Financial Markets, Institutions and Money. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Financial Markets, Institutions and Money, 29, March 2014, 10.1016/j.intfin.2013.11.005.




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