| dc.description.abstract | The concept of value strategies outperforming glamour strategies have been
dominating in finance literature, but the reason is still contentious. In this thesis, we are
replicating the LSV paper and in addition to that, we analyze the source of value premium in
the dimension of risk. The risk characteristics we are using are Altman Z-score, Amihud
illiquidity, Share turnover Liquidity and Accruals. We undertake one-way classification of
stocks, forming decile portfolios of stocks on basis of the risk characteristics we construct.
Followed by double sorts of the risk characteristics with the book to market ratio. We use
Fama-MacBeth regression to investigate the importance of the variables in explaining returns.
We find that all variables are important. Lastly, we use our model which is inspired by the
Fama French three Factor model and Carhart model to investigate the abnormal return of
value minus glamour strategy. The results suggest that, the risk factor from Amihud illiquidity
(LIQ) and accruals (ACC) explain the value minus glamour strategy i.e. makes the abnormal
return of this strategy to be zero and statistical insignificant. These results hold in different
time periods, as well as when we adjust for small cap and penny stocks. From our findings,
we can say that abnormal return from the value minus glamour strategy is explained by
illiquidity risk and risk of stocks having low Accruals. We conclude that value strategies
outperform glamour strategies because they are fundamentally riskier. | nb_NO |
