Further evidence on the value premium on the UK stock market

Union Jack
Dannebrog

Further evidence on the value premium on the UK stock market

Show full item record

Title: Further evidence on the value premium on the UK stock market
Author: Møller, Kristina
Abstract: This master thesis provides further evidence on the value premium on the UK stock market. The main hypothesis to be tested in this thesis is whether evidence supporting the presence of a value premium on the UK stock market is still to be found. Furthermore, different hypotheses put forth in previous research, as to why the value premium has appeared in the past, are to be examined. In replicating the UK stock market, the FTSE All share Index is used. The empirical analysis conducted in this thesis is based on the methodology presented in Lakonishok et al. (1994). Several company characteristics have been found to be applicable in identifying value stocks and thus separating them from growth stocks. The four value indicators used in this thesis are price earnings ratios, dividend yields, book to market values and growth in sales ranks. According to these indicators, stocks are divided into deciles and portfolios are found, comprising either value or growth stocks. Single year portfolio returns, together with average five year returns are calculated. According to all value indicators, bar dividend yield, distinct return patters are detected going from the most extreme value portfolio to the most extreme growth portfolio. Furthermore, the recent financial crisis does seem to have an impact on the returns found. The explanatory power of the value indicators is tested in explaining the variation in stock returns. Evidence showing the significance of the book to market variable is found. Moreover, the significance of the discovered value excess returns is tested. Both single year returns together with accumulated three and five year returns are found significant according to all strategies, with the exception of the one based on dividend yields. Value stocks yield higher returns than growth stocks. Different explanations presented in previous research are examined in order to explain the appearance of the value excess returns found in this thesis. To explain the value premium by concepts of modern finance theory, different risk measures are investigated and compared for the value and growth portfolios. No evidence to support the risk hypothesis is found. Neither does the UK stock market appear inefficient; however a possible bias from the size effect may be present in the data foundation. From a behavioural finance perspective, the presence of the value premium found is sought to be explained by the extrapolation hypothesis stating that the premium is an outcome of mispricing. Evidence rejecting this hypothesis is not found.
URI: http://hdl.handle.net/10417/1570
Date: 2011-01-17
Pages: 81 s.
Files Size Format View
1982.xls 5.813Mb Microsoft Excel View/Open
1983.xls 5.650Mb Microsoft Excel View/Open
1984.xls 5.625Mb Microsoft Excel View/Open
1985.xls 5.994Mb Microsoft Excel View/Open
1986.xls 6.176Mb Microsoft Excel View/Open
1987.xls 7.184Mb Microsoft Excel View/Open
1988.xls 16.84Mb Microsoft Excel View/Open
1989.xls 7.425Mb Microsoft Excel View/Open
1990.xls 7.794Mb Microsoft Excel View/Open
1991.xls 9.070Mb Microsoft Excel View/Open
1992.xls 7.384Mb Microsoft Excel View/Open
1993.xls 7.817Mb Microsoft Excel View/Open
1994.xls 16.46Mb Microsoft Excel View/Open
1995.xls 9.039Mb Microsoft Excel View/Open
1996.xls 5.334Mb Microsoft Excel View/Open
1997.xls 5.167Mb Microsoft Excel View/Open
1998.xls 4.695Mb Microsoft Excel View/Open
1999.xls 4.552Mb Microsoft Excel View/Open
2000.xls 4.270Mb Microsoft Excel View/Open
2001.xls 4.086Mb Microsoft Excel View/Open
2002.xls 3.974Mb Microsoft Excel View/Open
2003.xls 3.898Mb Microsoft Excel View/Open
2004.xls 2.521Mb Microsoft Excel View/Open
2005.xls 1.927Mb Microsoft Excel View/Open
2006.xls 1.479Mb Microsoft Excel View/Open
2007.xls 1.019Mb Microsoft Excel View/Open
Beta Calculations.xls 9.686Mb Microsoft Excel View/Open
Extrapolation Calculations 1983-1993.xls 4.006Mb Microsoft Excel View/Open
Extrapolation Calculations 1994-2004.xls 3.021Mb Microsoft Excel View/Open
FTSE + Risk free rate.xls 125.5Kb Microsoft Excel View/Open
kristina_moeller.pdf 444.4Kb PDF View/Open
Regression, Bet ... n & Market cap Results.xls 74Kb Microsoft Excel View/Open
Replication file FT 1996q1-2009q1.xlsx 730.0Kb Microsoft Excel 2007 View/Open
Replication file UKED - 1982-1995.xls 450Kb Microsoft Excel View/Open
Results 1983-2004.xls 250.5Kb Microsoft Excel View/Open

The following license files are associated with this item:

This item appears in the following Collection(s)

Show full item record