Performance of Value and Growth Stocks in the Aftermath of the Global Financial Crisis

Abstract

Background: Due to strong empirical evidence from different markets, existence of value premium became a financial theory standpoint. Although previous studies found that value stocks beat growth stocks in bearish and bullish markets, during the GFC, value stocks underperformed growth stocks. Objectives: This paper aims to examine the performance of value and growth stock portfolios after the GFC. Subjects of our analysis are constituent companies of the DJIA index, out of which portfolios of large-cap value and growth stocks have been constructed and evaluated. Methods/Approach: We measure the performance of stock portfolios, which are created based on the naïve diversification rule and random weighting approach. Statistical testing includes Levene’s homogeneity test, the Mann-Whitney U test, T-test, and the One-Sample T-test. Results: Growth stock portfolios outperform value stock portfolios after the GFC. The dominance of growth stock portfolios compared to value stock portfolios is significant, and the value premium disappears. Conclusions: Financial theory and investment management implications show that growth stocks have overtaken the dominance over value stocks since 2009. Causes might be in (1) expansionary monetary policy characterized by very low long-term interest rates and (2) high performance of the tech industry to which most growth stocks belong.

Value Stocks versus Growth Stocks: An Examination of Bursa Malaysia

“…The result was the opposite for the consumer products and services sector, which saw an increase to 30%. The percentage of the technology sector was 10% in growth stocks, which had no significant representation in value stocks since the majority of growth stocks are a part of the technology sector (Bevanda et al, 2021). The technology sector is characterised by the greater potential for growth in the future The dominant sectors in growth stocks are consumer products and services, which include, in Bursa Malaysia, agricultural products, consumer services, food/beverages, travel, hospitality, etc.…”

“…Value stocks did not beat growth stocks until the years before 1994 and the years before the GFC, and even then, the gap between growth and value stocks was insignificant. Besides, Bevanda et al (2021) found that growth stocks now outperform value stocks, as evidenced by financial theory and investment management implications since 2009. Causes could include (1) an expansionary monetary policy with very low long-term interest rates and (2) the tech industry's strong success, which the majority of growth stocks are a part of.…”

Valuing equity securities using fundamental analysis: Evidence from international stock markets

“…Undervalued securities have historically produced an independent source of risk which has diversification benefits in portfolio management as well as risk management. Market research on US value premium stocks have been well documented in prior literature (Jeong, Lee & Mukherji, 2009;Athanassakos, 2009;Bevanda & Arnaut -Berilo, 2021) as well as evidence that anomalies in stock markets exist and tend to disappear or decline once they are published (Enow, 2022;. Therefore, theorising observations on undervalued stocks that have outperformed other securities is not the core of financial theory and is really not helpful in isolation.…”

Earnings Management and Dividend Payments during the Covid-19 Pandemic

“…Given that the economic crisis caused by the COVID-19 pandemic is still ongoing, it offers vast opportunities for scientific activities. Hence, various economic variables should be considered in future research to enhance the understanding of its effect on the corporate environment [47], and to identify the means necessary for timely and effective response to its consequences [48].…”