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Value versus growth stocks and earnings growth in style investing strategies in Euro-markets

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  • Salim Chahine

Abstract

While recent studies have concentrated on why value stocks outperform growth stocks, this paper investigates whether these strategies are sensitive to earnings growth level. Empirical tests are conducted based on returns strategy and asset pricing analysis. Controlling for Fama and French (1993) risk factors, empirical results provide evidence that a value strategy with a high earnings growth rate, that is, undervalued value stocks, outperformed both value and growth strategies in the Euro zone from 1988 to 2003. Empirical findings suggest that earnings growth has a valuable effect in determining the performance of value- versus growth-stocks portfolios. Further investigations confirm the positive effect of earnings-per-share momentum in undervalued value stocks, whereas there is no significant effect in overvalued growth stocks.

Suggested Citation

  • Salim Chahine, 2008. "Value versus growth stocks and earnings growth in style investing strategies in Euro-markets," Journal of Asset Management, Palgrave Macmillan, vol. 9(5), pages 347-358, December.
    • Handle: RePEc:pal:assmgt:v:9:y:2008:i:5:d:10.1057_jam.2008.31
    DOI: 10.1057/jam.2008.31
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    References listed on IDEAS

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    1. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
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    5. Ron Bird & Jonathan Whitaker, 2004. "The performance of value and momentum investment portfolios: Recent experience in the major European markets Part 2," Journal of Asset Management, Palgrave Macmillan, vol. 5(3), pages 157-175, October.
    6. Ball, Ray & Kothari, S. P. & Shanken, Jay, 1995. "Problems in measuring portfolio performance An application to contrarian investment strategies," Journal of Financial Economics, Elsevier, vol. 38(1), pages 79-107, May.
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    Cited by:

    1. Phan Tran Minh Hung & Tran Thi Trang Dai & Phan Nguyen Bao Quynh & Le Duc Toan & Vo Hoang Diem Trinh, 2019. "The Relationship between Risk and Return - An Empirical Evidence from Real Estate Stocks Listed in Vietnam," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(11), pages 1211-1226, November.
    2. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    3. I-Cheng Yeh, 2023. "Synergy frontier of multi-factor stock selection model," OPSEARCH, Springer;Operational Research Society of India, vol. 60(1), pages 445-480, March.
    4. Bevanda Lea-Marija & Zaimović Azra & Arnaut-Berilo Almira, 2021. "Performance of Value and Growth Stocks in the Aftermath of the Global Financial Crisis," Business Systems Research, Sciendo, vol. 12(2), pages 268-283, December.
    5. Monge, Manuel & Lazcano, Ana & Parada, José Luis, 2023. "Growth vs value investing: Persistence and time trend before and after COVID-19," Research in International Business and Finance, Elsevier, vol. 65(C).

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