Rationalizing the Value Premium Under Economic Fundamentals in an Emerging Market

36 Pages Posted: 9 Sep 2011 Last revised: 28 Oct 2012

See all articles by Muhammed Shahid Ebrahim

Muhammed Shahid Ebrahim

Durham Business School

Sourafel Girma

Nottingham University Business School

M. Eskandar Shah

affiliation not provided to SSRN

Date Written: September 7, 2011

Abstract

This paper studies the value anomaly in the context of Malaysia, an emerging economy with a top heavy, closely held, and state-owned institutional setting. We attribute the anomaly to the investment pattern of growth firms. Our empirical analysis illustrates that growth firms have a tendency to hoard cash, delaying the undertaking of their growth options, especially in poor economic environments. This mitigates their business risk, but lowers their market valuation, driving down their returns. Our hypothesis also reconciles the diverging views stemming from both the neoclassical and behavioral perspectives.

Keywords: asset pricing, growth (i.e., glamour) stocks, multifactor models, real options, value (i.e., unspectacular) stocks, portfolio choice, investment decisions, asset pricing

JEL Classification: G110, G120

Suggested Citation

Ebrahim, Muhammed Shahid and Girma, Sourafel and Shah, M. Eskandar, Rationalizing the Value Premium Under Economic Fundamentals in an Emerging Market (September 7, 2011). Available at SSRN: https://ssrn.com/abstract=1923612 or http://dx.doi.org/10.2139/ssrn.1923612

Muhammed Shahid Ebrahim (Contact Author)

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Sourafel Girma

Nottingham University Business School ( email )

Jubilee Campus
Nottingham, NG8 1BB
United Kingdom
+44 0 115 8466656 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/~lizsmg/

M. Eskandar Shah

affiliation not provided to SSRN

No Address Available

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