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Expected value premium: Evidence from combined Nordic markets

Milkic, Ana LU and Dau, Anh LU (2017) NEKN02 20171
Department of Economics
Abstract
Accumulated empirical research has evidenced the existence of value premium, which refers to the return gap between value and growth stocks. Our paper aims to investigate this phenomenon for Nordic market by estimating expected return from its fundamentals, dividends and earnings. Our study covers analyses of expected returns from 1998 to 2016 for 141 companies. We use dividend approach to calculate expected returns by decomposing it on two components: expected dividend yield and long-term dividend growth rate. According to our findings the expected dividend yield takes majority part in determining expected returns compared to long-term dividend growth rate, which we interpret as a corollary of firms cutting dividend payment and using... (More)
Accumulated empirical research has evidenced the existence of value premium, which refers to the return gap between value and growth stocks. Our paper aims to investigate this phenomenon for Nordic market by estimating expected return from its fundamentals, dividends and earnings. Our study covers analyses of expected returns from 1998 to 2016 for 141 companies. We use dividend approach to calculate expected returns by decomposing it on two components: expected dividend yield and long-term dividend growth rate. According to our findings the expected dividend yield takes majority part in determining expected returns compared to long-term dividend growth rate, which we interpret as a corollary of firms cutting dividend payment and using stock repurchase as payout. Our empirical findings further show that value premium is positive and is on average 0.68 percent per month. Moreover, we confirm value premium predictability by indicating that independent variables: default spread, terms spread, dividend yield and risk free rate are statistically significant in its forecasting. (Less)
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author
Milkic, Ana LU and Dau, Anh LU
supervisor
organization
course
NEKN02 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
value premium, expected returns, expected dividend yield, Nordic market
language
English
id
8910182
date added to LUP
2017-06-13 15:19:20
date last changed
2017-06-13 15:19:20
@misc{8910182,
  abstract     = {Accumulated empirical research has evidenced the existence of value premium, which refers to the return gap between value and growth stocks. Our paper aims to investigate this phenomenon for Nordic market by estimating expected return from its fundamentals, dividends and earnings. Our study covers analyses of expected returns from 1998 to 2016 for 141 companies. We use dividend approach to calculate expected returns by decomposing it on two components: expected dividend yield and long-term dividend growth rate. According to our findings the expected dividend yield takes majority part in determining expected returns compared to long-term dividend growth rate, which we interpret as a corollary of firms cutting dividend payment and using stock repurchase as payout. Our empirical findings further show that value premium is positive and is on average 0.68 percent per month. Moreover, we confirm value premium predictability by indicating that independent variables: default spread, terms spread, dividend yield and risk free rate are statistically significant in its forecasting.},
  author       = {Milkic, Ana and Dau, Anh},
  keyword      = {value premium,expected returns,expected dividend yield,Nordic market},
  language     = {eng},
  note         = {Student Paper},
  title        = {Expected value premium: Evidence from combined Nordic markets},
  year         = {2017},
}