Is Industry-Specific Value Premium Declining? Evidence from India

Title

Is Industry-Specific Value Premium Declining? Evidence from India

Creator

Sharma B.; Srikanth P.; Suresha B.

Description

This article examines whether the literature promised value effect exists and the changing nature of value premium at the industry level. It also determines the value premiums strength by controlling the January effect within and across the regulated industry groups. This is done by utilizing the two most prominent pricing models: FamaFrench three- and five-factor, considering all listed firms trading at BSE India between 1999 and 2020. The results show that a significant value effect exists in 15 of the 17 regulated industry groups over 21.5 years, while sub-period analysis revealed variation in the value effect at industry-based portfolio returns. We developed quintile and multivariate portfolios within and across the industries. Results show that the industry-specific value premium has been relatively low in the current decade due to decreasing industry portfolio returns and increasing P/B ratios within industry groups. The study also used the GRS test to explore the explanatory power of models. Results indicated that the explanatory power of models has declined in post-crisis periods. While controlling the January effect, the value premium has slightly diminished within and across the industry groups in the recent decade. We also observed that investors who seek to allocate assets within and across industries are likely to have potentially predictable and pretty stable returns. While other countries have found industry-specific value premiums, no such study has been conducted in India. As a first attempt, these findings are relevant for investors and academia. 2022 Management Development Institute.

Source

Vision

Date

2022-01-01

Publisher

Sage Publications India Pvt. Ltd

Subject

Asset Pricing; Firm Size; January Effect; Portfolio Management; Regulated Industries; Stock Returns; Value Premium

Coverage

Sharma B., Christ University, Mysore Road, Kengeri Campus, Karnataka, Bangalore, India; Srikanth P., Christ University, Mysore Road, Kengeri Campus, Karnataka, Bangalore, India; Suresha B., Christ University, Main Campus, Karnataka, Bangalore, India

Rights

Restricted Access

Relation

ISSN: 9722629

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1177/09722629221130214

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