Rationalizing the value premium in emerging markets

M.S. Ebrahim; S. Girma; M.E. Shah; J.M. Williams

doi:10.1016/j.intfin.2013.11.005

Rationalizing the value premium in emerging markets

M.S. Ebrahim
, S. Girma
, M.E. Shah
, J.M. Williams

The Albert Gubay Business School

Research output: Contribution to journal › Article › peer-review

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

Original language	English
Pages (from-to)	51-70
Journal	Journal of International Financial Markets, Institutions and Money
Volume	29
Early online date	1 Dec 2013
DOIs	https://doi.org/10.1016/j.intfin.2013.11.005
Publication status	Published - Mar 2014

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

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10.1016/j.intfin.2013.11.005

Cite this

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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",

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AB - 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

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DO - 10.1016/j.intfin.2013.11.005

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JO - Journal of International Financial Markets, Institutions and Money

JF - Journal of International Financial Markets, Institutions and Money

ER -

Rationalizing the value premium in emerging markets

Abstract

UN SDGs

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