This paper, in light of irrational behavioural sentiments, examined value premium anomaly across price to earnings ratio-based portfolios over a period from 2004 to 2016 in the Indian equity market. The study observed excess premium in value stocks with high statistical significance along with higher market portfolio risk in the growth stock portfolios. It refuted the argument of value premium as a compensation for recession related fundamental risk. Sensitivity to behavioural risk found to be negative across both portfolios with lesser impact on the value stocks' excess returns. It observed positive overreaction of trading in the growth stock portfolios and negative overreaction of trading in the value stocks portfolios and also found mispricing both in information day and non information day trading. Erroneous contrarian trading strategies and extent of noise in the prices of stocks of each portfolio cause differences in their behavioural risk exposure, thereby, results in value effect.
No takes yet. Share an insight, caveat, or question.
George et al. (2022) studied this question.
Synapse has enriched 5 related papers. Consider them for comparative context:
More from International Journal of Financial Markets and Derivatives