Value versus growth: Taiwan evidence

Purpose

The purpose of this paper is to use a stochastic dominance test to examine the relative performance of value vs growth stocks based on multiple value-growth proxies in the Taiwan stock market.

Design/methodology/approach

This work examines whether the return distribution of a value portfolio stochastically dominates that of a growth portfolio using a test proposed by Linton  et al.  (2005).

Findings

By applying stochastic dominance analysis on the full-sample period, the sub-sample period and the state of the world’s economic conditions, the authors find that the earnings-to-price or dividend-to-price ratio is better than the book-to-market ratio as a value-growth proxy in Taiwan. There are robust results even after adjusting for data frequency, a sampling method and sample excluding financial services.

Originality/value

This study makes the first attempt to examine value vs growth strategies based on multiple value-growth proxies in the emerging market of Taiwan by administering the stochastic dominance test.