Value versus Growth on OMXS and Asymmetric Responses to Earnings Surprises

Sammanfattning: Numerous studies have been conducted worldwide mapping differences in stock returns based on value versus growth characteristics. This paper examines whether there are differences in quarterly returns between value and growth stocks on OMX Stockholm (OMXS) 2004-2014. The obtained results are tested with econometric methods to determine if the differences are explained by asymmetric reactions to earnings surprises between the stock classes. Using quarterly data for companies listed on the OMXS subsequent to the dot-com bubble burst, we form equally weighted portfolios based on the financial ratios Book-to-Price (B/P), Earnings-to-Price (E/P) and Dividend-to-Price (D/P). Growth portfolios consist of the lowest 30% of each measure and value portfolios consist of the highest 30% of each measure. The results show controversial evidence of growth stocks outperforming value stocks in the B/P and E/P portfolios, while no difference in quarterly returns are observed between the D/P portfolios. Furthermore, we find that more pronounced reactions to positive earnings surprises for growth stocks partly explain the differences in quarterly return.