Abstract
M.Com. (Finance)
The value premium is an anomaly of financial markets insofar as it enables portfolio managers to earn excess returns which cannot be predicted by the prevailing equilibrium asset pricing model, that is the capital asset pricing model (CAPM). The existence and persistence of the value premium anomaly is therefore a subject of interest for investment professionals. Kruger and Toerien (2014) tested the persistence of the value premium anomaly by investigating the effect of the global financial crisis of 2007 to 2009 on the value premium which was observed by prior studies of the JSE. The study confirms the value premium anomaly during the global financial crisis but finds that the proxy for the value premium is the ratio of a firm’s cash flow to its market price instead of the book-to-market or earnings-to-price ratios, as documented in prior studies on the JSE. The question addressed in the present study was whether or not the findings of Kruger and Toerien (2014) were specific to the period of the crisis or if similar results would be found almost a decade after the crisis. This is an important study to undertake as some researcher have suggested that the value premium observed in financial markets across the world is sample specific and data dependent (Pätäri & Leivo, 2017; Mahlophe & Muzindutsi, 2017; Malkiel, 2003).
A quantitative approach was adopted to establish the relationship between proxies of the value premium anomaly and share returns. Panel regression analysis was applied to secondary data from the FTSE/JSE Top 40 Index which was used to study three sub-periods: the period before, during and after the global financial crisis of 2007 to 2009. The study concluded that there is a value premium anomaly for shares listed on the JSE in the period before, during and after the global financial crisis. Furthermore, the proxies by which value portfolios can be defined and ranked by order of significance are the cash-flow-to-price, book-to-market and earnings-to-price ratios.