VALUE VS GROWTH STOCKS

Abstract

This paper investigates a relation between investor sentiment and performance of value stocks over growth stocks by comparing monthly returns of value and growth stocks during the period of 2007 through 2011. Do value stocks earn higher returns than growth stocks in emerging market around the world? The purpose of this study is to discuss this question regarding the stocks of the Nifty National stock exchange (NSE). We examine the average returns on portfolios to see whether investors in an emerging market relying on the information extracted from the developed capital market based on the B/M ratio would earn a high return. Previous studies have generally found that returns on growth stocks, or stocks with high price-to-earnings (P/E) ratios, often lag behind those of value stocks, or stocks with low-P/E ratios .This study examines the long-term (up to 5 years) performance of growth stocks versus value stocks when a buy-and-hold strategy is adhered to. The study examines the performance of growth versus value stocks of portfolios created during the period 2007-11. The findings of this study indicate that the long-term performance (5 years) of growth stocks is higher than the long term performance of value stocks for portfolios created during the years included in this study. Statistical tools like Correlation, t-test and Regression have been used to determine which category of stocks perform better. I found that outperformance of value stocks over growth stocks are particularly salient around recession periods. This observation leads us to conjecture that investor sentiment may be an important determinant of relative performance of value stocks over growth stocks. The study uses panel data of CNX Nifty 50firms for the period of 2007-2011 that consists of 22 sectors of the economy.