Value Premium and Methodological Biases? Evidence from the UK Equity Market

Journal of Investment Management and Financial Innovations, Vol. 3, No. 3, pp. 40-58, 2006

Posted: 3 Nov 2006

See all articles by Panagiotis Andrikopoulos

Panagiotis Andrikopoulos

Centre for Financial and Corporate Integrity (CFCI), Coventry University

Arief Daynes

University of Portsmouth - Business School

David Latimer

Portsmouth Business School

Paraskevas Pagas

University of Portsmouth

Abstract

We look for the existence of a value premium in the UK equity market for the period 1987-2002. Previous studies are subject to four methodological biases: (1) survivorship bias, (2) look-ahead bias, (3) a downward bias in post-formation growth stock returns caused by excluding recently listed growth stocks from the data, and (4) an upward bias in post-formation value stock returns caused by computing long-term returns by cumulating monthly returns (Conrad and Kaul (1993)). We eliminate the first three biases by using a new survivorship bias and look-ahead bias free dataset, which contains a complete history of all UK stocks that were fully listed at any time during 1987-2002. We eliminate the fourth bias by computing post-formation holding period returns, as recommended in Conrad and Kaul (1993). Our results indicate that the value effect is far smaller than is reported in previous studies, and is neither economically nor statistically significant.

Keywords: Value Premium, UK Market, Contrarian Investments, Market Efficiency

JEL Classification: G11, G12, G14

Suggested Citation

Andrikopoulos, Panagiotis and Daynes, Arief and Latimer, David and Pagas, Paraskevas, Value Premium and Methodological Biases? Evidence from the UK Equity Market. Available at SSRN: https://ssrn.com/abstract=942076

Panagiotis Andrikopoulos (Contact Author)

Centre for Financial and Corporate Integrity (CFCI), Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)

Arief Daynes

University of Portsmouth - Business School ( email )

Portsmouth, PO1 3DE
United Kingdom
+44 23 92844182 (Phone)
+44 23 92844037 (Fax)

HOME PAGE: http://www.port.ac.uk/departments/academic/ams/staff/title,1246,en.html

David Latimer

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

Paraskevas Pagas

University of Portsmouth ( email )

Department of Accounting and Finance
Portsmouth Business School
Portsmouth, Hants PO1 3DE
United Kingdom
+44(0)23 9284 4721 (Phone)
+44(0)23 9284 4037 (Fax)

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