توجیه منطقی حق بیمه ارزش در بازارهای نوظهور
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|13613||2014||20 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of International Financial Markets, Institutions and Money, Volume 29, March 2014, Pages 51–70
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.
Fama and French's (1992) finding that a single factor encapsulating risk (beta) does not adequately explain cross-sectional differences in stock returns, has motivated an important strand of research on asset pricing, reigniting the debate on the fundamental relationship between risk and return, and challenging the widely-accepted capital asset pricing model (CAPM). Subsequently, numerous theoretical and empirical studies examine the cross-sectional variation in stock returns with many finding patterns unexplained by the CAPM and commonly known as anomalies. This paper examines one of the most pronounced anomalies, the value premium puzzle. Portfolios formed on the basis of high book-to-market (BE/ME), cash flow-to-price (C/P) and earnings-to-price (E/P) are reported to earn significantly higher risk-adjusted returns than portfolios with contrasting characteristics. However, the previous literature fails to achieve a consensus on the source of the value premium (Chou et al., 2011). The objectives of this paper are to confirm the presence of value premium in a new market, to provide a new rationalization based on economic fundamentals, and to reconcile the diverging perspectives which are apparent in the literature. The value premium reflects a tendency for ‘glamour firms’ to hoard cash and delay implementation of growth strategies, particularly in times of economic uncertainty (Titman, 1985, McDonald and Siegel, 1986 and Ingersoll and Ross, 1992). Since growth (glamour) stocks derive their market value from embedded growth in the form of real options (Zhang, 2005), we argue that cash hoarding limits their exposure to risk but exerts a significant detrimental impact on their stock returns. The theoretical basis for our analysis derives from Fama and French (1995) and Daniel and Titman (1997). Fama and French (1995) develop a three-factor model, in which the factor that captures distress risk, known as HML, is lower for growth (glamour) firms than for value firms. The debate centres on whether lower distress risk accounts for the discrepancy in average returns between value firms and growth firms (Fama and French, 1995) against claims that distress risk does not contribute to the value premium (Dichev, 1998 and Griffin and Lemmon, 2002). We contend that both the cash-drag factors and firm characteristics, as highlighted by Daniel and Titman (1997), are of relevance. In comparison with value firms, growth firms face a wider array of strategic options, carrying various levels of risk. These firms may limit their exposure to risk by abstaining from investing resources in risky strategies, especially in poor economic environments. Accordingly, growth firms hoard cash when economic conditions are tough, and realize lower returns. By contrast, value firms are prominent in mature and/or declining markets and face a more limited range of options. Such firms face financial risk, as well as business risk, owing to a tendency to use existing assets as collateral in order to leverage earnings. They have less flexibility in managing their risk, because past sunk-cost investment in assets is irreversible (Zhang, 2005). Our approach in rationalizing the value premium is consistent with the neoclassical framework, in which low-risk assets yield lower returns and vice versa. Our research draws on two recent studies that contrast the approach of Fama and French (1995) with Daniel and Titman (1997). In a similar vein to Daniel and Titman (1997), Chen et al. (2011) propose a three-factor model incorporating factors with greater explanatory power for cross-sectional returns than the Fama and French model. We aim to extend these findings, by obtaining results that are not sample-specific (a limitation of Chou et al., 2011), and by adopting a real options framework in cases where the Net Present Value investment perspective (Chen et al., 2011) is inapplicable.1 This paper is among the few that try to reconcile differences not only between the neoclassical asset-pricing literature (Fama and French versus Daniel and Titman), but also the neoclassical and behavioural literature. Our application is to a new grouping of four, large emerging markets: namely, Brazil, China, India and Turkey, the BTIC group.2 Each of these economies has achieved remarkable growth since the early 2000s, which implies there are many firms endowed with plentiful growth options.3 Our paper addresses two research questions: (i) is a statistically significant value premium present in the BTIC? (ii) is it possible to rationalize the value premium and reconcile the apparently conflicting views in the literature? To investigate questions (i) and (ii) we source relevant variables from 1999 to 2009 to allow our analysis of value anomalies to be conducted under generally favourable economic conditions including increasing stock market integration following the liberalization of equity markets in the BTIC. By way of preview, we find a significant value premium in the BTIC which is not new for emerging markets but re-emphasizes the value premium is not a developed country phenomenon. A second result, which is based on the widely-used Altman Z-score model, shows value firms are no more prone to risk than growth firms, but value firms employ more leverage. Our evidence suggests the investment patterns of growth firms are the source of the value premium. In an asset-pricing model, the HML coefficients of growth portfolios are small during low-growth periods and considerably larger during high-growth periods. This pattern is consistent with the hypothesis that growth firms delay the implementation of new strategies in periods of economic uncertainty in order to limit their risk. The HML coefficients of growth portfolios are sensitive to changes in size (total assets). Accordingly growth in total assets, interpreted to proxy implementation of growth strategies, explains the change in business risk of growth firms. This affirms our hypothesis that the investment patterns of growth firms impact significantly on their risk and return. Our results also resolve the various perspectives in the literature in three ways. First, Fama and French (1995) and Daniel and Titman (1997) attribute the outperformance of value stocks to different causes. Daniel and Titman (1997) explain performance differentials between value and growth stocks as being due to the characteristics of firms as opposed to covariance with risk factors. Value stocks outperform because growth firms tend to hoard cash and delay undertaking the growth options they are endowed with and this drags down their returns. In the Fama and French (1995) framework, this phenomenon is attributed to distress risk. Second, growth firms’ flexibility to manage their embedded growth options to their operational and strategic advantage yields not only profit, but also provides utility in its own right: embedded options provide ‘glamour firms’ with an allure with which to entice investors. ‘Fascination’ with growth firms (Sargent, 1987) creates a premium in price (and hence a discount in returns), which helps reconcile the neoclassical and behavioural perspectives. Third, the over-reaction hypothesis of De Bondt and Thaler, 1985 and De Bondt and Thaler, 1987 is rationalized through the volatile nature of value firms’ leveraged equity, which is akin to Call options. These options are depressed in poor economic states but rebound in prices with improving economic climate. This paper is organized as follows. Section 2 reviews the relevant literature, and identifies the research questions and methodology. Section 3 offers a brief synopsis of market developments in the BTIC. Section 4 presents data and methodology. The results and checks for robustness are in Sections 5 and 6. Section 7 offers concluding comments.
نتیجه گیری انگلیسی
A number of theories are postulated to rationalize the source of the value premium yet the issue remains controversial. We reassess this issue for the BTIC group of countries that are characterized as having vast economic potential. The paper rationalizes the value premium in terms of economic fundamentals, attributing the premium to the investment patterns of growth firms that we contend are more likely to hoard cash, particularly during episodes of economic malaise. Although this behaviour is understood because it limits growth firms’ exposure to risk, nevertheless it negatively impacts on both their market valuation and returns. The paper helps to reconcile the diverging neoclassical views of Fama and French (1995) and Daniel and Titman (1997) in explaining the expected returns of value and growth stocks. Fama and French (1995) claim the HML coefficient measures distress risk whereas Daniel and Titman (1997) believe it captures firm characteristics. Our evidence offers support for the latter interpretation. We contest that growth firms are endowed with growth options, which entails capital outlay whilst enhancing business risk and it is this feature that differentiates growth firms from value firms. Value firms, by contrast, use fixed assets as collateral to lever up in order to boost earnings, which in turn aggravates financial risk. This interpretation of our findings is consistent with Chen et al. (2011). We also reconcile the diverging neoclassical and behavioural perspectives by invoking a rational expectations perspective (Lucas, 1978) as extended by Sargent (1987). We consider the range of options available to growth firms provides a utility (‘infatuation’) that is separate from monetary returns in the forms of capital gains and dividends. This inherent utility of growth firms is attractive to investors and causes their stock prices to appreciate, which subsequently lowers returns. Our empirical evidence offers three conclusions. Our first result re-confirms the presence of the value premium in emerging markets under favourable economic conditions. Second, value stocks and growth stocks are not characterized by different levels of distress as suggested by Fama and French (1995). We observe value firms are more highly levered than growth firms, which reconciles the behavioural perspective (De Bondt and Thaler, 1985 and De Bondt and Thaler, 1987) with the neoclassical perspective (Merton, 1974). We contend the leverage behaviour of value firms exhibits characteristics similar to volatile financial options, which plummet very fast during economic downturns and rebound equally fast upon recovery. Our findings are robust to alternative means of portfolio construction. Third, by observing the time varying pattern of conditional beta (HML) we find value (growth) portfolios are less (more) sensitive to size but more (less) sensitive to leverage. As a robustness check, fixed-effects methods demonstrate the value premium is attributable to economic fundamentals in a static framework. The finding that growth portfolios are sensitive to changes in total assets reaffirms our belief that the risk and return structure of growth firms is determined by their investment pattern. We believe our paper provides further insights on the source of the value premium, particularly in the context of the under-researched emerging economies.