Growth versus value investing: a case of Nigerian Stock Market
-
Author(s)Mukail Aremu AkindeLink to ORCID Index: https://orcid.org/0000-0002-1677-3564
,
Eriki Peter
,
Ochei Ailemen Ikpefan
-
DOIhttp://dx.doi.org/10.21511/imfi.16(1).2019.03
-
Article InfoVolume 16 2019, Issue #1, pp. 30-45
- Cited by
- 1415 Views
-
166 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
At a time, the Nigeria Stock Exchange (NSE) is generally undergoing bearish trends; the paper investigated the performance of eighty-eight (88) sampled stocks, which were screened with the modern Price Earnings Growth (PEG) ratio into the Growth and the Value Portfolios. This is to ascertain whether the Value Portfolio outperformed the Growth Portfolio in terms of returns. From the researches in the developed and emerging stock markets, the momentum supports that the Value Portfolio outscored the Growth Portfolio in terms of returns. The paper explored pooled data from the Factbooks of the Nigerian Stock Market and the Annual Reports across different industries from 1990 to 2016. Descriptive methods and Arellano and Generalized Methods of Moment (GMM) xtabond2 were adopted to address the outliers, reverse causality and other related consequences of panel data. Similar to the findings from the developed and emerging stock markets, the study recognized that the Value Portfolio over-performed the Growth Portfolio in terms of returns in the NSE. Therefore, it is recommended that rational investors should show more preferences to invest in low-priced Value Stocks to earn higher returns than the high-priced Growth Stocks, which generated lower returns in the NSE.
view full abstract
- Keywords
-
JEL Classification (Paper profile tab)G11, G12
-
References82
-
Tables9
-
Figures0
-
- Table 1. Descriptive statistics (Growth Stock Portfolio)
- Table 2. Descriptive statistics (Value Stock Portfolio)
- Table 3. Pairwise Correlation Matrix (Growth Stock Portfolio)
- Table 4. Variance Inflation Factor (Growth Stock Portfolio)
- Table 5. Pairwise Correlation Matrix (Value Stock Portfolio)
- Table 6. Variance Inflation Factor (Value Stock Portfolio)
- Table 7. Regression result modelling (Growth Stock Portfolio)
- Table 8. Regression result modelling (Value Stock Portfolio)
- Table 9. Summary of features and xtabond2 coefficients of the Growth and Value Stocks
-
- Addae-Dapaah, Webb, J. R., K., Hin/David, K. H., & Hiang, L. K. (2011). Value Versus Growth International Real Estate Investment Strategy (IRES Working Paper Series) (51 p.). National University Singapore.
- Ailemen, Ikpefan O., Akhanolu, I. A., & Chibuzor, O. T. (2016). Deregulation of Foreign Exchange Market and its Effect on Industrial Produce in Nigeria. Asian Journal of Information Technology, 15(13), 2101-2107.
- Alile, A. H. (1999). Portfolio Investment in Nigeria. Proceeding of the eight Annual Conference of the Zonal Research unit in Kaduna. Research Department, CBN.
- Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and Application to Employment Equations. Review of Economics Studies, 58, 277-297.
- Babajide, A. A., & Adetiloye, K. A. (2012). Investors’ Behavioural Biases and the Security Market: An Empirical Study of the Nigerian Security Market. Accounting and Finance Research, 1(1), 219-229.
- Baltagi, B. H. (2008). Econometric Analysis of Panel Data, 6th Edition, England, John Wiley Chiester Sons, Ltd., 105-300.
- Basu, S. (1975). The information content of Price Earnings Ratios. Financial Management Journal, 4(2), 53-64.
- Basu, S. (1977). Investment Performance of Common Stocks in Relation to their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis. Journal of Finance, 32(3), 663-682.
- Basu, S. (1983). The Relationship between Earnings Yield, Market Value and Returns for NYSE Common Stocks: Further Evidence. Journal of Financial Economics, 12(1), 129-156.
- Bauman, W., Conover, C., & Miller, R. (1998). Growth Stocks versus Value Stocks and Large- Cap Versus Small Cap Stocks in International Markets. Financial Analysts Journal, 54, 75-89.
- Bauman, W. S., & Miller, R. E. (1997). Investor Expectations and the Performance of Value Stocks versus Growth Stocks: Why Value Stocks Outperform Growth Stock. Journal of Portfolio Management, 23(3), 57-60.
- Beneda, N. (2003). Growth Stocks Outperform Value Stocks Over Long Term. Academy of Accounting and Financial Studies Journal, 7(2), 79-84.
- Bratland, Erik, & Mäki, David (2014). An Empirical Study into Value Investing on The Stock in Stock Exchange (Master Thesis), Umean school of Business and Economics.
- Buffett, W. (1984). The Super Investors of Graham and Doddsville, A Talk Delivered at Columbia University, Commemorating the Fiftieth Anniversary of Security Analysis (1934) evidencing how Graham’s disciples have used value investing to outperform the market, 1-16.
- Burns, B. (2014). Trend Trading for Dummies (208 p.). John Wiley and Sons Inc. Hoboken. New Jersey and Canada.
- Cenesizoglu, T., & Timmermann, A. (2008). Is the Distribution of Stock Returns Predictable? University of Montreal and University of Toronto Documents.
- Chan, L. K. C., & Lakonishok, J. (2004). Value and Growth investing: Review and Update. Financial Analysts Journal, 71-85.
- Chan, L., K. C., Hamao, Y., & Lakonishok, J. (1991). Fundamentals and Stock Returns in Japan. The Journal of Finance, 46(5), 1739-1764.
- Cordeiro, R. A., & Machado, M. A. (2013). Value or Growth Strategy? Empirical Evidence in Brazil. Revista Brasileira de Gestao de Negocios, 15(46), 91-111.
- Cronqvist, H., Siegel, S., & Yu, F. (2013). Value versus growth investing: Why do different investors have different styles? Journal of Financial Economics, 117(2), 333-349.
- Ekeocha, P. C. (2008). Modelling the Long Run Determinants of Foreign Portfolio Investment in Emerging Markets: Evidence from Nigeria. Paper presented at International Conference on Applied Economics, ICOAE.
- Eriki, P. O. (1999). Which Game to Play in the Emerging Stock Markets in Developing World: Concentration or Diversification? Nigerian Example. Journal of Financial Management and Analysis, 12(1), 1-8.
- Fama, E. (1965). Random Walks in Stock Prices. Financial Analyst Journal, 21(5), 55-59.
- Fama, E., & French, K. (1992). Studies of New York Stock Exchange using Company’s size and Price to Book ratio, 1963– 1990. The Journal of Finance, 51, 140-154.
- Fama, E. F., & French, K. R. (1992). The Cross Section of Expected Returns. The Journal of Finance, 47(2), 427-465.
- Fama, E., & French, K. (1995). Size and Book-to-Market Factors in Earnings and Returns. Journal of Finance, 50(1), 131-155.
- Fama, E., & French, K. (2012). Size, Value and Momentum in International Returns. Journal of Financial Economics, 105(3), 457-472.
- Fama, E. F., & French, K. R. (1998). Value versus Growth: The International Evidence. The Journal of Finance, 53(6), 1975-1999.
- Fama, E. F., & French, K. R. (2006). The Value Premium and the CAPM. The Journal of Finance, 61(6), 2163-2185.
- Fama, E. F., & French, K. R. (2004). The Capital Asset Pricing Model: Theory of Evidence. Journal of Economic Perspectives, 18(3), 25-46.
- Francis, J. (2000). Investments (60 p.). McGraw-Hill, New York. Washington DC, United States.
- Graham, B., & Dodd, D. L. (1934). Security Analysis, New York, United States of America: McGraw-Hill Companies, Inc. London, 12-33.
- Hickey, M. Luongo, C., & Nielson, D. (2015). Does the Number of Stocks in a Portfolio Influence Performance? Investments Insights (Unpublished Paper 1-9).
- Hirschey, M. & Nofsinger, J. (2008). Investments Analysis and Behaviour, New York, United States: McGraw-Hill Irwin, 89-389.
- Hussaini, Musa (2016). Size and Value in the Stock Exchange of Thailand. Journal of Financial Risk, 5, 14-21.
- Ibrahim, T. R., & Akinbobola, T. O. (2017). Foreign Portfolio Investment and Economic Growth in Nigeria. Journal of Economics and Sustainable Development, 8(5), 33-52.
- Ijaiya, M. A, Sanni, M., Amujo, E. T., & Suleiman, H. B. (2014). Dividend Policy and Financial Performance; A Survey of some Selected Companies in Nigeria. Department of Accounting and Finance Journal, 17(1), 19-32.
- Isibor, A., Ojo, J., & Ikpefan, O. A (2018). Does financial deregulation spurs economic development in Nigeria? Journal of Applied Economics Sciences, 12(8), 2339-2350.
- Isibor, A. A., Ikpefan, O. A., Okafor, T. C., & Ojeka, S. (2016). Impact of money market on the liquidity of some selected quoted banks in Nigeria. International Business Management, 10(5), 646- 651.
- Jitendra, M., & Ranjan, D. S. (2016). Asset Pricing Models – Cross Section of Expected Stock Returns and Financial Market Anomalies: A Review of Theories and Evidences. Journal of Management Research, 16(4), 230-249.
- Jones, Charles P. (2010). Investments, Principles and Concepts, International Student Version (11th ed.) (34 p.). John Wiley and Sons (Asia) limited, Australia.
- Kalesnik, V., & Kose, E. (2016). The Moneyball of Quality Investing. Advisor Perspective Research Affiliates, 1-8.
- Kucko, I. (2007). Investing Fund Portfolio Selection Strategy. Vilnius Lithuania Verslas and Practice, 4, 214-220.
- La Porta, R. (1996). Expectations and the Cross Section of Stock Returns. Journal of Finance, 51(5), 1715-1742.
- Lakonishok, J., Shleifer, A., & Vishny, R. (1994). Contrarian Investment, Extrapolation and Risk. Journal of finance, 49, 1541- 1578.
- Lakonishok, Josef, Lee, I., & Poteshman, A. M. (2004). Behavioural Finance and Option Market (Working Paper) (44 p.). Department of Finance, University of Illinois at Urbans-Champaign.
- Leivo, T. A., Pätäri, E. J., & Kilpiä, I. J. J. (2009). Value Enhancement Using Composite Measures: The Finish Evidence. International Research Journal of Finance and Economics, 33, 7-30.
- Litner, J. (1965). The Valuation of Risk Assets and Selection of Risky Investment in Stock Portfolio and Capital Budgets. Review of Economics and Statistics, 47(1), 13-37.
- Markowitz, H. (1952). Portfolio Selection. Journal of Finance, 7(1), 77-91.
- Mayo, H. B. (2006). Investment, An Introduction, Ohio, United States: Thomson, South-Western Ltd., 5-43.
- Miwa, K., & Ueda, K. (2014). Analyst Preference for Growth Investing and Vulnerability to Market-Wide Sentiments. Journal of Economic Literature, 1-30.
- Naik, P. K. (2013). Does stock market respond to economic fundamentals? Time series Analysis from Indian Data. Journal of Applied Economics and Business Research, 3(1), 34-50.
- Nguyen, H., Oates, G., & Dunkley, M. (2014). A review of the establishment of the stock market in Vietnam-in relation to other Transitional Economies. International journal of economics and finance, 6(10), 17-25.
- Nwagu, D. (2007). The Stock Market Whiz kid, How to Trade in Nigerian Stock Market without Losing a Kobo (30 p.). Success Publishers, Lagos.
- Nwidobie, B. M. (2014). The Random Walk Theory: An Empirical Test in the Nigerian Capital Market. Asian Economic and Financial Reviews, 4(12), 1840-1848.
- Nwidobie, B. M. (2015). Macroeconomic Determinants of Share Prices in the Nigerian Capital Market. Business and Entrepreneurship Journal, 4(2), 1-12.
- Oladeji, T. F., Ikpefan, O. A., & Alege, P. O. (2018). Stock Market Volatility and Non- Macroeconomic Factors: A Vector Error Correction Approach. Journal of Applied Economics Sciences, 13(2), 303-315.
- Oladeji, T., Ikpefan, A. O., & Olokoyo, F. O. (2015). An Empirical Analysis of Capital Structure on Performance of Firms in the Petroleum Industry in Nigeria. Journal of Accounting and Auditing, Research and Practice, 1-9.
- Olokoyo, F. O., & Ogunnaike, O. O. (2011). An Empirical Analysis of the Effect of Stock Market Crisis on Economic Growth: The Nigerian Case. Journal of Finance, 7(4), 172-186.
- Olusanya, E. O., Salisu, A. A., & Olofin, S. O. (2016). Applied Panel Data Analysis (121 p.). Ibadan University Press.
- Onyeisi, O. S., Odo, I. S., & Anoke, C. I. (2016). Foreign Portfolio Investment and Stock Market Growth in Nigeria. Journal of Business and Management (IOSR), 6(11), 64-76.
- Osmond, N. O. (2016). Foreign Portfolio Investment and Industrial Growth in Nigeria (1986–2013). International Journal of Finance and Economic Research, 4(3), 31-38.
- Otuteye, E., & Siddiquee, M. (2013). Examining the Performance of a Value Investing Heuristic: Evidence from the S and P 60 from 2001–2011. Journal of Business Economics and Finance, 2(4), 67-81.
- Otuteye, E., & Siddiquee, M. (2015a). Avoiding Financially Distressed Companies Using a Value Investing Heuristic. Journal of Investing, 24(3), 73-99.
- Otuteye, E., & Siddiquee, M. (2015b). Overcoming Cognitive Biases: A Heuristic for Making Value Investing Decisions. Journal of Finance, 16(2), 140-149.
- Ozurumba, B. A. (2012). The Impact of Stocks Market Returns on Foreign Portfolio Investment in Nigeria. Journal of Business and Management (IOSRJBM), 2(4), 10-19.
- Pinkerton, David, B. (2015). Investing for Value and Growth (Clo White Paper). Falcon Private Bank, Swiss Private Bank Switzerland.
- Piotroski, Joseph, D. (2000). Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. Journal of Accounting Research, 38(3), 1-41.
- Roodman, D. (2009). How to do xtabond2: An Introduction to Difference and System GMM in Stata. The Stata Journal, 9(1), 86-136.
- Ross, S. (1976a). The Arbitrage Pricing Theory of capital Asset Pricing. Journal Economics of Theory, 13, 341-360.
- Ross, S. (1976b). Risk, Return and Arbitrage (Ed. 1). The Journal of Finance, Friend and J. Bicksler, Cambridge, Mass: Ballinger, 33(3), 885-991.
- Sanusi, M. S. (2015). Market Efficiency, Volatility Behaviour and Asset Pricing Analysis of the Oil and Gas Companies Quoted on London Stock Exchange (Ph.D. Thesis of Robert Gordon University (RGU)).
- Sareewiwatthana, P. (2011). Value Investing in Thailand: The Test of Basic Screening Rules. International Journal of Business Research Papers, 7(4), 1-13.
- Sareewiwatthana, P. (2012). Value Investing in Thailand: Evidence from the Use of PEG. Technology and Investment Scientific Research, 3, 113-120.
- Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium Under Conditions of Risk. Journal of Finance, 19(3), 425-442.
- Sistonen, I. (2014). Value investing with Rule-Based Stock Selection and Data Mining (Unpublished Master Thesis, Department of Information and Service Economy, Aalfo University).
- Stråhle, M. (2011). Value and Growth Stocks on the Swedish Stock Market (M.Sc. Thesis, Applied Economics Copenhagen Business School).
- Vorwerg, J. (2015). Value Vs Growth: Evidence from the German Stock Market (5th/BA Bachelor Thesis Conference, The Netherlands University of Twente, The Faculty of Behavioural, Management and Social Sciences).
- Waistell, N. (2016). Value Approaches to Investing in Emerging Markets-Why Multiples can be Deceptive. Newton Investment Management, 1-11.
- William, R. T. (2012). An Introduction to Trading in the Financial Markets Risk, Compliance and Regulation, United States and United Kingdom: Academic Press, 20-46.
- Wu, R. (2013). Equity Style Investing (Ph.D. thesis of Durham University).
- Zakaria, N., & Hashim, F. (2017). Emerging Market: Evaluating Graham’s Stock Selection Criteria on Portfolio Return in Saudi Arabia Stock Market. International Journal of Economics and Financial Issues, 17(2), 453-459.
Close
Investment Management and Financial Innovations