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Do Size and Value Premia Vary across Industry and during the Bull and Bear Market Conditions?: Evidence from the Euro Area
University West, Department of Economics and IT, Divison of Law, Economics, Statistics and Politics.ORCID iD: 0000-0002-5176-9253
Loyola University, Chicago.
2014 (English)In: Proceedings of Eurasia Business Research Conference / [ed] Mr. Md. Mahbubul Hoque Bhuiyan, 2014, Vol. no 319Conference paper (Other academic)
Abstract [en]

The elimination of exchange rate risk and overall integration of the European equity markets have created new opportunities to utilize industry-specific diversification strategies for portfolio and risk management decisions. Using daily return data for five major industries in the Euro area over the period, 2001-2012, our findings show that an industry-specific three-factor Fama and French type model provides a robust explanation of security returns. While, our results further emphasize the widespread influence of the “value” and “size” premiums in the Euro area, we show that the pattern, sign, size, and significance of these factors vary widely across different industries and during the “bull” (2003-2007) and “bear” (2007-2009) market conditions. The size premium predominantly plays a positive, stable and significant role in explaining security returns under different market conditions. On the other hand, the results for the value premium is not convincing. Its estimated coefficients are both positive and significant (30% of all cases), and negative and significant (66% of all cases). Nor does our results provide convincing evidence for the conventional risk-based argument in support of the existence of size and value premiums in the Euro area. Value stocks are generally associated with higher betas than those of growth stocks only during the bear market condition. The betas for small caps are consistently lower than those for the large caps. Finally, the momentum effect does not appear to play a strong rule in explaining security returns in the Euro area.

Place, publisher, year, edition, pages
2014. Vol. no 319
Keyword [en]
Euro Area, Value Premium, Size Premium, Industry Diversification, GARCH-M
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Research subject
URN: urn:nbn:se:hv:diva-7127ISBN: 978-1-922069-54-2OAI: diva2:770668
Eurasia Business Research Conference16 - 18 June 2014, Nippon Hotel, Istanbul, Turkey,
Available from: 2014-12-11 Created: 2014-12-11 Last updated: 2016-06-01Bibliographically approved

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