The performance of value stocks and growth stocks : Hong Kong stock market, 1981-2005

Li, Bo (2006-04)

Assignment (MCom)--Stellenbosch University, 2006.

Thesis

ENGLISH SUMMARY : This paper investigates whether value stocks outperformed growth stocks in the case of the Hong Kong market over the period 1981 to 2005. The firm size effect on this value and growth study was also taken into account. Both whole sample period and sub sample period returns are studied. The difference between value weighted and equally weighted portfolio returns is considered. Finally, the underlying reason why value stocks have a higher return than growth stocks is tested. Value stocks outperformed growth stocks in most of the years during 1981 to 2005. The paired t-test shows that the mean return spreads between value stocks and growth stocks are greater than zero by a statistically significant margin. The results of two sub sample periods show a consistent value premium. After controlling the firm size effect, value stocks continued to outperform growth stocks within the same firm size groups. The results of value weighted and equally weighted portfolio returns show that the difference in return between value stocks and growth stocks increases when the equally weighted portfolio returns are calculated. Value stocks seem to be fundamentally riskier than growth stocks if standard deviation is used as risk measure. This is confirmed by the special t-test when it is applied to the standard deviation of value and growth portfolios on the basis of value weighted returns. However, it was found that value stocks were not riskier than growth stocks by a statistically significant margin on the basis of equally weighted returns. Although a value investment strategy could generate higher returns compared with a growth investment strategy, the high transaction costs involved in regularly rebalancing the portfolio needs to be taken into account.

AFRIKAANSE OPSOMMING : Hierdie dokument ondersoek of die beleggingsprestasie van waarde-aandele hoer as die van groei-aandele was in die geval van die Hong Kong aandelemark gedurende die periode 1981 tot 2005. Die effek van maatskappy-grootte is ook in die studie in ag geneem. Daarbenewens is die hele periode, sowel as korter subperiodes in ag geneem. Die verskil in beleggingsprestasie van portefeuljes wat saamgestel is op grond van die relatiewe markwaarde van die verskillende onderliggende aandele, is bereken, sowel as portefeuljes waar elke onderliggende aandeel dieselfde gewig het. Ten slotte is ondersoek ingestel na die redes waarom waarde-aandele 'n hoer opbrengs as groei-aandele het. Waarde-aandele het 'n hoer opbrengs as groei-aandele in die meeste van die jare in die periode 1981 tot 2005 gelewer. Die gepaarde t-toets toon dat die verskil in opbrengs tussen waarde- en groei-aandele statisties beduidend is. Die resultate van die 2 sub-periodes toon eweneens 'n konsekwente waarde-premie. Nadat voorsiening vir die effek van maatskappygrootte gemaak is, het waarde-aandele nog steeds beter as groei-aandele gevaar. Die resultate van markwaarde-geweegde en gelyk-geweegde portefeuljes toon dat die verskil in opbrengs tussen waarde- en groei-aandele toeneem in die geval van gelyk-geweegde portefeuljes. Dit wil voorkom asof waarde-aandele meer riskant as groei-aandele is indien standaardafwyking as risikomaatstaf gebruik word. Hierdie vermoede word bevestig wanneer die spesiale t-toets toegepas word op die standaard-afwyking van waarde- en groeiportefeuljes in die geval van markwaarde-geweegde portefeuljes. Hierdie ondersoek bevind egter dat waarde-aandele nie meer riskant as groei-aandele met 'n statisties beduidende marge is nie indien portefeuljes saamgestel word op die basis van gelyke gewigte van die onderliggende aandele. Alhoewel 'n waarde-beleggingstrategie dus hoer opbrengste as 'n groeibeleggingstrategie kan genereer, moet die hoe transaksiekoste van gereelde portefeuljebalansering in gedagte gehou word.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/50665
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