Changing Nature of the Value Premium in the Indian Stock Market

Abstract

The article aims to test whether the nature of value premium has changed over time in the Indian stock market. Contrary to the existing literature on the Indian market, the analysis suggests that post the global crisis, the value premium has nearly ceased to exist. Using price-to-book (P/B) ratio as the proxy, the findings are robust to employing capital asset pricing model (CAPM) and the Fama and French three-factor (FF) model, and five alternative measures of returns: equal-weighted (whole and trimmed sample) and value-weighted (whole, trimmed and winsorized sample). Chow test suggests that the model parameters have changed over time. While the decrease in premium has been discovered for other countries, there was no such study in the Indian context. This is the first attempt of its kind. The findings have important implications for academia and investors.