1. Expectation Errors in European Value-Growth Strategies*
- Author
-
Christian Walkshäusl
- Subjects
040101 forestry ,Economics and Econometrics ,050208 finance ,Ex-ante ,Financial economics ,05 social sciences ,Equity (finance) ,04 agricultural and veterinary sciences ,Accounting ,0502 economics and business ,Economics ,0401 agriculture, forestry, and fisheries ,Portfolio ,Market expectations ,External financing ,Finance - Abstract
This article tests Piotroski and So's (2012) market expectation errors approach to value-growth investing in European equity markets. As in the USA, European value-growth returns are concentrated among firms with existent market expectation errors, but absent among firms without such errors which can be ex ante identified by interacting book-to-market with FSCORE, an accounting-based measure of the firm's fundamental strength. The returns to an expectation errors-based value-growth strategy are highly persistent for up to three years after portfolio formation, pervasive among large firms, and cannot be explained by common risk factors. However, consistent with a mispricing-based interpretation, prior external financing activities significantly influence these market expectation errors. A financing-based misvaluation factor can explain the return behavior of value-growth strategies formed along market expectations errors.
- Published
- 2016
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