Value or Growth Strategy? Empirical Evidence in Brazil

27 Pages Posted: 5 Aug 2013

See all articles by Rebeca Albuquerque Cordeiro

Rebeca Albuquerque Cordeiro

Federal Institute of Education, Science and Technology of Paraíba - IFPB

Marcio Andre Veras Machado

Federal University of Paraiba (UFPB)

Date Written: August 4, 2013

Abstract

This article aimed at verifying the existence of value versus growth and at identifying the variables that best explain their impact on Brazilian stock profits. To this end, we tested book-to-market, price-earnings and price-to-cash flow variables. Two methodological approaches were employed: portfolio analysis, in which portfolios were formed according to each variable of interest and regression analysis with panel data, based on individual assets. The sample was made up of companies with shares traded in BM&FBOVESPA during the 1995-2008 period. According to results found, growth stocks presented higher profits than value stocks. Thus, we may conclude that the well-documented value versus growth is not valid in Brazil, since empirical evidence supported growth strategies. Due to the long research period, results may signal prevalence of growth strategy in the long term. Furthermore, the high volatility of emerging countries’ capital markets was emphasized, as pointed out by Fama and French (1998). Moreover, to establish investment strategies that allow for greater profits, it was found that the variable that best identifies growth stocks is the book-to-market ratio.

Keywords: Value versus growth, Stocks, Investment strategies

JEL Classification: G11, G15

Suggested Citation

Cordeiro, Rebeca Albuquerque and Machado, Marcio Andre Veras, Value or Growth Strategy? Empirical Evidence in Brazil (August 4, 2013). Available at SSRN: https://ssrn.com/abstract=2305768 or http://dx.doi.org/10.2139/ssrn.2305768

Rebeca Albuquerque Cordeiro

Federal Institute of Education, Science and Technology of Paraíba - IFPB ( email )

Av. 1º de Maio
720, Jaguaribe
Paraíba, 58.015-430
Brazil

Marcio Andre Veras Machado (Contact Author)

Federal University of Paraiba (UFPB) ( email )

Centre for Applied Social Sciences
Graduate School of Management
João Pessoa, Paraiba
Brazil

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