University of Oulu

Value versus growth on the Finnish stock market

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Author: Dinh, Thi1
Organizations: 1University of Oulu, Oulu Business School, Department of Finance, Finance
Format: ebook
Version: published version
Access: open
Online Access: PDF Full Text (PDF, 1.1 MB)
Pages: 76
Persistent link:
Language: English
Published: Oulu : T. Dinh, 2021
Publish Date: 2021-06-21
Thesis type: Master's thesis
Tutor: Conlin, Andrew
Reviewer: Sahlström, Petri
Conlin, Andrew


The author carries out the study in order to investigate the performance of value stocks versus growth stocks on the Helsinki stock exchange throughout the years 2015 and 2019. It is important to find out whether the superior returns exist when the whole investment capital is put into the value portfolio or the growth portfolio and during different circumstances such as boom and bust periods as well as different economic cycles.

The stocks are classified into two portfolios consisting of purely value stocks and growth stocks based on fundamental financial ratios including price-to-earnings ratio (P/E), price-to-cash-flow ratio (P/CF), market-to-book value (MTBV) and price-earnings-growth ratio (PEG). If the stocks score low on these ratios, the stocks are considered to be value stocks. On the contrast, if the stocks score high on these ratios, they are considered to be growth stocks. The holding periods for these portfolios are 6 months, 12 months (1 year), 36 months (3 years) and 60 months (5 years).

Average annual returns (also known as non-risk-adjusted returns or absolute returns) and risk-adjusted returns belonging to the portfolios are compared. In general, the growth portfolios yield higher returns than the value portfolios in most cases, during almost all investment horizons and for almost all variables, except for PEG, which always experiences the opposite. The similar scenario occurs when it comes to boom and bust periods as well as different economic cycles. More significantly, the Betas are always lower for the portfolios that experience higher returns.

The findings of this research does not completely confirm the results of the previous studies conducted on the same topic. While the old studies are in favour of the contrarian investment strategy in value stocks, these empirical results suggest to go for the confronting investment strategy in growth stocks.

The phenomenon of having high returns without high risk does not necessarily deny the well-rooted financial theories such as Efficient Market Hypothesis (EMH) or the Capital Asset Pricing Model (CAPM) due to the fact that not all risk are reflected in the Beta. Moreover, behavioural finance, especially investors’ irrationality, can be used to potentially explain the existence of the superior returns.

The conclusion drawn is that depending on different variables and different investment horizons, investors should use different strategy of investing in value stocks or growth stocks in order to gain the highest possible returns.

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Copyright information: © Thi Dinh, 2021. This publication is copyrighted. You may download, display and print it for your own personal use. Commercial use is prohibited.