A1 Journal article (refereed), original research
A Closer Look at Value Premium: Literature Review and Synthesis

Publication Details
Authors: Pätäri Eero, Leivo Timo
Publisher: Wiley: 24 months
Publication year: 2017
Language: English
Related Journal or Series Information: Journal of Economic Surveys
Volume number: 31
Issue number: 1
Start page: 79
End page: 168
Number of pages: 90
ISSN: 0950-0804
JUFO-Level of this publication: 1
Open Access: Not an Open Access publication

Abstract
This paper provides a systematic review of value premium literature that examines theperformance difference between value and growth stocks and the possible reasons for it. We compareand synthesize the results from the different regional stock markets and different sample periods.The literature is categorized according to stock selection criteria that are based on either individualvaluation ratios, such as E/P, B/P, D/P, S/P, CF/P, and enterprise value-based multiples, or compositevalue criteria that aim to capture more than one dimension of relative value simultaneously or combinethem with other classification criteria. We also compare the efficacy of various selection criteria toeach other and synthesize the literature on the explanations for the value anomalies. The overallevidence shows that the best criterion varies over time and across the markets. The relative efficacy ofdifferent valuation criteria also seems to depend on numerous methodological choices. Recent studieshave given mild evidence that combining traditional valuation ratios either with each other or withsome financial statement variables could at least in some cases enhance the value premium, althoughvery few studies have provided transparent comparisons between the results based on individualvaluation ratios and those based on composite value criteria.

Last updated on 2018-19-10 at 07:55