Exploring the transitional behavior among value and growth stocks

Exploring the transitional behavior among value and growth stocks This study explored the transitional behavior among value and growth stocks based on a balanced panel comprising 520 firms from small-cap S&P 600, mid-cap S&P 400, and large-cap S&P 500 companies during 1999–2008. By employing the nonlinear panel smooth transition regression model, we determined that the annual market-adjusted stock returns were positively related to contemporaneous changes in earnings per share and total asset growth rates and negatively related to the log-transformed 1-year lagged price-to-book equity ratio (LP/B) using the log-transformed 1-year lagged market equity as a transition variable. Our empirical findings are consistent with those by Lakonishok et al. (J Finance 49:1541–1578, 1994), who hypothesized that investors overreact to past firm performance, and Fama and French (Finance Anal J 63:48–58, 2007a, Finance Anal J 63:44–54, 2007b), who discussed the converging P/B ratios caused by the mean reversion in growth, profitability, and expected returns. The three transitional determinants are critical to describing the transitional behavior among value and growth stocks. Moreover, our empirical results indicated that a threshold value of the log-transformed 1-year lagged market equity exists, separating the sample into two groups: value and growth stocks. In addition, the robust test confirmed that the value stocks obtained higher market-adjusted returns during out-of-sample years from 2009 to 2012. These findings have far-reaching implications for institutional investors when creating a profitable and effective investment strategy, and also for CEOs of S&P companies when investing to maximize firm value. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Exploring the transitional behavior among value and growth stocks

Loading next page...
 
/lp/springer_journal/exploring-the-transitional-behavior-among-value-and-growth-stocks-yMBYi9ttPK
Publisher
Springer US
Copyright
Copyright © 2015 by Springer Science+Business Media New York
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-015-0511-7
Publisher site
See Article on Publisher Site

Abstract

This study explored the transitional behavior among value and growth stocks based on a balanced panel comprising 520 firms from small-cap S&P 600, mid-cap S&P 400, and large-cap S&P 500 companies during 1999–2008. By employing the nonlinear panel smooth transition regression model, we determined that the annual market-adjusted stock returns were positively related to contemporaneous changes in earnings per share and total asset growth rates and negatively related to the log-transformed 1-year lagged price-to-book equity ratio (LP/B) using the log-transformed 1-year lagged market equity as a transition variable. Our empirical findings are consistent with those by Lakonishok et al. (J Finance 49:1541–1578, 1994), who hypothesized that investors overreact to past firm performance, and Fama and French (Finance Anal J 63:48–58, 2007a, Finance Anal J 63:44–54, 2007b), who discussed the converging P/B ratios caused by the mean reversion in growth, profitability, and expected returns. The three transitional determinants are critical to describing the transitional behavior among value and growth stocks. Moreover, our empirical results indicated that a threshold value of the log-transformed 1-year lagged market equity exists, separating the sample into two groups: value and growth stocks. In addition, the robust test confirmed that the value stocks obtained higher market-adjusted returns during out-of-sample years from 2009 to 2012. These findings have far-reaching implications for institutional investors when creating a profitable and effective investment strategy, and also for CEOs of S&P companies when investing to maximize firm value.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Apr 3, 2015

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve Freelancer

DeepDyve Pro

Price
FREE
$49/month

$360/year
Save searches from Google Scholar, PubMed
Create lists to organize your research
Export lists, citations
Read DeepDyve articles
Abstract access only
Unlimited access to over
18 million full-text articles
Print
20 pages/month
PDF Discount
20% off