Are international value premiums driven by the same set of fundamentals?

Angela J Black, Patricia Fraser, David G. McMillan

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

This paper investigates the long-run behaviour of international value premium price indices for G7 countries using data from January 1975 to December 2002. We use Johansen [Johansen, S., 1991. Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica 59, 1551–1580; Johansen, S., 1995. Likelihood-based Inference in Cointegrated Vector Autoregressive Models, Oxford University Press] cointegration methodology and find one cointegrating vector for the period of December 1987 to December 2002. The results are robust to local currencies and a common currency. The cointegrating vector may reflect expectations about future economic activity since investors can adjust demand for either value or growth stocks depending on expected economic growth. Our results show that the cointegrating relationship can predict both future changes in the growth of logged industrial production and future stock market returns.
Original languageEnglish
Pages (from-to)113-129
Number of pages17
JournalInternational Review of Economics & Finance
Volume16
Issue number1
Early online date3 Aug 2005
DOIs
Publication statusPublished - Jan 2007

Fingerprint

Value premium
Vector autoregressive model
Cointegration
Price index
Currency
Inference
Economic activity
Industrial production
Investors
Methodology
Value stocks
Hypothesis testing
Stock market returns
Growth stocks
G-7 countries
Common currency
Economic growth

Keywords

  • value premium
  • conintegration

Cite this

Are international value premiums driven by the same set of fundamentals? / Black, Angela J; Fraser, Patricia; McMillan, David G.

In: International Review of Economics & Finance, Vol. 16, No. 1, 01.2007, p. 113-129.

Research output: Contribution to journalArticle

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