Value and growth stock returns: international evidence (JES)

Abstract

Purpose

This study aims to analyze the returns obtained from companies with strong growth potential (growth stocks) and the returns from companies with quite low stock prices, but with high value (value stocks).

Design/methodology/approach

The sample comprises monthly data, from January 2002 to December 2016, from seven countries, Germany, France, Switzerland, the UK, Portugal, the USA and Japan. The authors have used linear regression models for three different periods, the pre-crisis, subprime crisis and post-crisis period.

Findings

The results point out that the performance of value and growth stocks differs from different periods surrounding the global financial crisis. In fact, for six countries, value stocks outperformed growth stocks in the period that precedes the subprime crisis and during the crisis, this tendency remained only for France, Portugal and Japan. This trend changed in the period following the crisis. The results also show that investor sentiment has a robust significance in value and growth stock returns, mostly in the period before the crisis, highlighting that the investor sentiment is more significant in the moments that the value stocks outperformed.

Originality/value

As far as the authors know, this is the first work that, taking into account the future research lines of Capaul et al. (1993), investigates whether the results obtained by those authors remain current, meeting the authors’ challenge and covering the gap of recent studies on the performance of value and growth stocks. Besides, the authors have introduced a new country, heavily punished by both the global financial crisis and the sovereign debt crisis to understand whether there are significant differences in investment styles and whether this is related to the different economies. Also, in this context, the authors were pioneers in adding investor sentiment as an exogenous variable in the influence of stock returns.

Citation

Neves, M.E., Abreu Pinto, M., Assunção Fernandes, C.M.d. and Simões Vieira, E.F. (2021), "Value and growth stock returns: international evidence (JES)", International Journal of Accounting & Information Management, Vol. 29 No. 5, pp. 698-733. https://doi.org/10.1108/IJAIM-05-2021-0097