Explaining Value vs. Growth Fallacy: An Empirical Study for Indian Market

Vibhuti Vasishth, Sanjay Sehgal


Prior research describes value and growth characteristics on the same continuum. We attempt to test this for the Indian market. Similar to past studies, our results confirm the presence of value premium. But unlike previous literature, superior profits in growth strategy are also observed. This leads us to believe that value and growth are different dimensions. 

Value premium may be explained by investor overreaction. Whereas, growth premium arises due to future growth potential of high growth stocks.

Negative correlation is observed between value and growth premiums which can be used by investors for achieving time diversification. We find that higher profits can be achieved by combining value and growth. The returns on univariate value or growth strategies are explained by either Capital Asset Pricing Model or Fama-French three factor model. The returns on bivariate strategies based on both value and growth remain unexplained even by Fama-French five factor model level.

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DOI: https://doi.org/10.5296/ajfa.v11i2.15215

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