Title: Value effect in Indian stock market: an empirical analysis

Authors: Vanita Tripathi; Priti Aggarwal

Addresses: Department of Commerce, Delhi School of Economics, University of Delhi, 110007, New Delhi, India ' Department of Commerce, Delhi School of Economics, University of Delhi, 110007, New Delhi, India

Abstract: The value effect is the tendency of value stocks to outperform the growth stocks in the long-term. In this paper, we attempt to investigate the presence of value effect in the Indian stock market and compare the performance of various value stocks portfolios as compared to growth stocks portfolios and market portfolio using return and various risk-adjusted measures over the period 1999-2015. The different portfolios were formed on the basis of alternative valuation measures viz. price to book ratio (P/B), price to earnings ratio (P/E), dividend yield (D/P), cash flow yield (C/P), sales to price ratio (S/P) and enterprise value to PBDITA ratio (EV/PBDITA). Besides the conventional risk-adjusted measures, we have also used M² measure and Fama's decomposition measure. We find that value effect is significant on unadjusted as well as risk-adjusted return basis. Further, we found that value investment strategy yields significant positive abnormal returns in Indian market.

Keywords: value effect; price to book ratio; price to earnings ratio; dividend yield; cash flow yield; sales to price ratio; enterprise value to PBDITA ratio; Fama-decomposition measure.

DOI: 10.1504/IJPSPM.2018.090735

International Journal of Public Sector Performance Management, 2018 Vol.4 No.2, pp.146 - 168

Received: 10 Apr 2017
Accepted: 11 Jul 2017
Published online: 27 Mar 2018 *

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