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Value stocks and market efficiency

Author

Listed:
  • Roger Best
  • Ronald Best
  • James Yoder

Abstract

We form portfolios based on firm book-to-market equity ratios and apply stochastic dominance tests. Value (high book-to-market) portfolios dominate low book-to-market portfolios. Thus, value stocks are not rationally priced by the market and the book-to-market ratio is not an efficiently priced proxy for equity risk. We also find that the superior performance of value stocks is not due to the January effect. Copyright Springer 2000

Suggested Citation

  • Roger Best & Ronald Best & James Yoder, 2000. "Value stocks and market efficiency," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 24(1), pages 28-35, March.
    • Handle: RePEc:spr:jecfin:v:24:y:2000:i:1:p:28-35
    DOI: 10.1007/BF02759693
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    References listed on IDEAS

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    1. Barber, Brad M & Lyon, John D, 1997. "Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms," Journal of Finance, American Finance Association, vol. 52(2), pages 875-883, June.
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    3. Brooks, Robert & Kroll, Yoram, 1995. "The Impact of Sampling Errors on the Choice of Portfolio Efficiency Analysis Rules with Borrowing and Lending of a Riskless Asset," The Financial Review, Eastern Finance Association, vol. 30(4), pages 663-683, November.
    4. Levy, Haim & Kroll, Yoram, 1979. "Efficiency Analysis with Borrowing and Lending: Criteria and Their Effectiveness," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 125-130, February.
    5. Chan, Louis K. C. & Jegadeesh, Narasimhan & Lakonishok, Josef, 1995. "Evaluating the performance of value versus glamour stocks The impact of selection bias," Journal of Financial Economics, Elsevier, vol. 38(3), pages 269-296, July.
    6. Haim Falk & Haim Levy, 1989. "Market Reaction to Quarterly Earnings' Announcements: A Stochastic Dominance Based Test of Market Efficiency," Management Science, INFORMS, vol. 35(4), pages 425-446, April.
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    Cited by:

    1. Yi-Chein Chiang & Mei-Chu Ke & Tung Liang Liao & Cin-Dian Wang, 2012. "Are technical trading strategies still profitable? Evidence from the Taiwan Stock Index Futures Market," Applied Financial Economics, Taylor & Francis Journals, vol. 22(12), pages 955-965, June.
    2. Ke, Mei-Chu & Chiang, Yi-Chein & Liao, Tung Liang, 2007. "Day-of-the-week effect in the Taiwan foreign exchange market," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2847-2865, September.
    3. repec:wvu:wpaper:10-08 is not listed on IDEAS
    4. Wang, Ming-Hui & Ke, Mei-Chu & Liang Liao, Tung & Chiang, Yi-Chein & Hsu, Chuan-Hao, 2020. "Alternative estimation method of earnings growth rate for PEGR strategy," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).

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