Can leverage effect coexist with value effect?
In this paper, we evaluate the cross sectional relationship between firm characteristics, financial leverage, and stock returns for the Indian stock market. The study finds that there are strong size and value effects existing in the return pattern of stocks, and also finds a complex pattern between...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Elsevier
2020-03-01
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| Series: | IIMB Management Review |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S0970389617300575 |
| _version_ | 1811213693056188416 |
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| author | Moinak Maiti A. Balakrishnan |
| author_facet | Moinak Maiti A. Balakrishnan |
| author_sort | Moinak Maiti |
| collection | DOAJ |
| description | In this paper, we evaluate the cross sectional relationship between firm characteristics, financial leverage, and stock returns for the Indian stock market. The study finds that there are strong size and value effects existing in the return pattern of stocks, and also finds a complex pattern between leverage and stock returns in the Indian context. The Gibbons, Ross, and Shanken (GRS) test confirms the robustness of three factor model with market, size, and leverage over Fama-French three factor model (1993) in most cases. The Wald test confirms that the effects of value and leverage are the same in determining portfolio returns in most cases. Further, study estimates show that portfolios formed using value and leverage breakpoints are not much sensitive to the results unlike portfolios formed using size breakpoints. |
| first_indexed | 2024-04-12T05:50:33Z |
| format | Article |
| id | doaj.art-6c0c059ccff24206a5ccd109fc542f23 |
| institution | Directory Open Access Journal |
| issn | 0970-3896 |
| language | English |
| last_indexed | 2024-04-12T05:50:33Z |
| publishDate | 2020-03-01 |
| publisher | Elsevier |
| record_format | Article |
| series | IIMB Management Review |
| spelling | doaj.art-6c0c059ccff24206a5ccd109fc542f232022-12-22T03:45:19ZengElsevierIIMB Management Review0970-38962020-03-01321723Can leverage effect coexist with value effect?Moinak Maiti0A. Balakrishnan1Department of Finance, National Research University Higher School of Economics, Saint Petersburg, Russia; Corresponding author.Department of Banking Technology (School of Management), Pondicherry University, Puducherry, IndiaIn this paper, we evaluate the cross sectional relationship between firm characteristics, financial leverage, and stock returns for the Indian stock market. The study finds that there are strong size and value effects existing in the return pattern of stocks, and also finds a complex pattern between leverage and stock returns in the Indian context. The Gibbons, Ross, and Shanken (GRS) test confirms the robustness of three factor model with market, size, and leverage over Fama-French three factor model (1993) in most cases. The Wald test confirms that the effects of value and leverage are the same in determining portfolio returns in most cases. Further, study estimates show that portfolios formed using value and leverage breakpoints are not much sensitive to the results unlike portfolios formed using size breakpoints.http://www.sciencedirect.com/science/article/pii/S0970389617300575SizeValueFinancial leverageAsset pricing factor modelsInvestment decision |
| spellingShingle | Moinak Maiti A. Balakrishnan Can leverage effect coexist with value effect? IIMB Management Review Size Value Financial leverage Asset pricing factor models Investment decision |
| title | Can leverage effect coexist with value effect? |
| title_full | Can leverage effect coexist with value effect? |
| title_fullStr | Can leverage effect coexist with value effect? |
| title_full_unstemmed | Can leverage effect coexist with value effect? |
| title_short | Can leverage effect coexist with value effect? |
| title_sort | can leverage effect coexist with value effect |
| topic | Size Value Financial leverage Asset pricing factor models Investment decision |
| url | http://www.sciencedirect.com/science/article/pii/S0970389617300575 |
| work_keys_str_mv | AT moinakmaiti canleverageeffectcoexistwithvalueeffect AT abalakrishnan canleverageeffectcoexistwithvalueeffect |