Original Research

Value and small firm premiums in the South African market

S. Hammar
South African Journal of Business Management | Vol 45, No 4 | a142 | DOI: https://doi.org/10.4102/sajbm.v45i4.142 | © 2018 S. Hammar | This work is licensed under CC Attribution 4.0
Submitted: 05 April 2018 | Published: 31 December 2014

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S. Hammar, School of Economics, University of Cape Town, South Africa

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Numerous studies have identified both value and size effects existing in international markets. Fewer studies have been conducted that document the same effects in the South African market. In this study, portfolios were constructed based on four valuation multiples, as well as market capitalisation from 1999 2012. In this 14-year period it was found that value stocks predominantly outperformed growth stocks when defined by P/E or P/CF. Growth stocks outperformed value stocks when the portfolios were based on P/B and DY. Also, significant evidence of a small firm premium was identified on the JSE, regardless of the valuation multiple. Furthermore, small-cap value stocks generated the highest mean returns over the period. The study identifies the prevalence of these premiums on the JSE, but the comprehensive explanations for these anomalies remain inconclusive.


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