Value Investing and Size Effect in the South Korean Stock Market

Abstract

There are indications that value investing strategies have been able to outperform the overall market in several countries across the globe. In this article, the specific case of South Korea is analyzed. It would appear that from a rigorous statistical point of view there are no strong evidence supporting the outperformance of value stocks versus growth stocks in South Korea, particularly when measured on a yearly basis. These results were consistent using both MSCI value and growth indexes as well as constructing portfolios using the P/E, P/B, cash flow per share and average 5-year sales growth. The statistical tests performed failed to reject for the majority of the years that the monthly returns come from distributions with different medians. The test yielding rather consistent results on a yearly basis but for large periods of time (decades) the results were more mixed, pointing in some cases to value investing outperforming over that very long time frame. It should be noted that the final value of the portfolios was rather different when using criteria, such as low P/E, typically associated with value stocks. The tests also failed to reject the hypothesis of different means for the monthly returns of small, medium and large companies.