Value Premium in the European Stock Markets: An Alternative Test

• Main Authors: TSAI, LI-CHUEH, 蔡麗雀
• Other Authors: LIAO, TUNG-LIANG
• Format: Others
• Language: en_US
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/8kk9nv

博士 === 逢甲大學 === 金融博士學位學程 === 105 === This study uses an alternative method, stochastic dominance (SD) test, to examine the value premium on the basis of book-to-market (B/M), earnings-to-price (E/P), cash earnings-to-price (CE/P), and dividend-to-price (D/P) indicators for the 14 major European markets, so a total of 56 market-indicator observations are formed. The results show that 12, 42, and 2 of 56 observations, 21.4%, 75%, and 3.6%, are found to be the existence, disappearance and reversal of the value premium, respectively, before 2008 financial crisis, which is consistent with the previous studies for European markets, like Fama and French (1998), Abhyankar et al. (2009), and Li et al. (2009) for European stock markets. However, the percentages of the three counterparts are 3.6%, 66.1%, and 30.3%, respectively, after 2008. Comparing results for two periods show that the existence of the value premium sharply decreases from 21.4% to 3.6%, while the reversal of the value premium dramatically increases from 3.6% to 30.3% after 2008, which is first documented for the European markets in the literature. Whether this regularity persists in European markets is worth continual concern.