Value Premia in Emerging Markets

The Case of Israel in 2000’s

Zhengyu Chen

Anurag Jain

Terence Lam

April, 29 th 2009

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Background

• (92, 96) Fama &French . (94) and Lakonis hok et al have s hown that value

s trategies yie ld high returns in US

• . (2001) Barry et al found 35 in emerging markets

1985-2000 / B Meffec ts are .s ignificant and are robus t

• Brandes Ins titute has publis hed combined

- s tudies of various non USmarkets

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As ian Markets

• , For As ian s tock markets there is no cons ens us on the exis tence and s ignificance of a value premium in the pres ence of mixed findings

• 2000Previous s tudies only focus ed till

• - . (2008) 4 Brown et al s tudied value premia in As ian markets 1993-2005 -during and found that premia are time varying

• Premia greater in the pos t cris is period acros s all four.countries

• / Studies for small medium s ize individual markets are s tills carce

: (2000-2005)Our Study Is rae l market

• No previous s tudies on value premium in Is rae l market

• / , , 406 Us ed DataStream to get P E Price MV data on companies

• / B Mdata s cattered acros s companies and time

• 75 Filtered data to s e lec t companies

• 5 / Formed portfo lios at end of April each year bas ed on P Es orting

• 15 / 15 / Buy companies with lowes t P E and s e ll with highes t P E every year

• Us ed Exce l and Matlab for data c lean up and analys is

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Dis cus s ion

• 2000-2005Value Premium exis ts for all years

• , However did not obs erve monotonic ity in return data

• Behavioral fac tors s hould explain the exis tence

• 2000 Study by Shapira &Venezia in s howed that both retail and large . inves tors exhibit dis pos ition effec t in Is rae l Thus behavioral e ffec ts

.are pres ent

• : Can other factors explain

–Macro factors effects?

–Sentiment around company policies

• Need more s tudies 6

BACK UP

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Year PF1 PF2 PF3 PF4 PF5 PF1-PF51 -17.09 -9.63 -12.40 -18.76 -31.36 14.282 1.19 4.82 5.16 6.42 -9.85 11.043 9.57 28.77 -8.15 20.09 6.38 3.194 73.96 89.25 80.93 40.17 57.65 16.315 38.71 14.31 17.32 24.01 23.60 15.11

11.98

5.29Mean Standard Dev.

Matlab made the job eas y to c leanup and analyze