Investing in value stocks: Empirical research in the Italian stock market

Nicolò Abbate

Student thesis: Master thesis


This research analyzes the performance of a value investing strategy in the Italian stock market from 1990 to 2011. The study has been conducted over a large sample of companies listed in the market in order to find some evidence over the presence of a value premium. The paper is composed of seven different chapters where are collected all the relevant information about the methodology and the results of the research. In the academic world there is a general agreement over the greater performance of value stocks over the growth stocks, but this result does not arise in the Italian case, where growth stocks delivers on average superior returns. The objective of the thesis is to find a possible explanation for this different behavior of the Italian stock market and what are the possible solutions to find a value premium in Italy. The theoretical framework is based on two distinctive approaches to the subject: the traditional finance and the behavioral finance. Most of the theories related to the traditional finance have their foundation in the efficiency of the markets and the use of the capital asset pricing model. The behavioral finance is a theory that puts together some aspects of cognitive psychology with financial theory, that focuses on the most realistic and human aspects of the investors, such as errors, irrationality and the lack of information. The stocks are selected according to three different criteria: Price to Earnings (P/E); Book to Market (B/M) and Dividend yield. The P/E portfolio consist of 201 companies and only the highest and lowest 30% of the companies were included in the annual analysis. The B/M portfolio contains a total amount of 251 companies and is the most complete in terms of data and representation of the Italian stock market. The Dividend yields portfolio is the smallest one represented with 57 stocks. The results have revealed a clear outperformance of the growth stocks in all the three analysis performed. The value investing strategy refuses the efficient market hypothesis, however, the results obtained in this research show in a negative performance of the value investing strategies in most of the cases.

EducationsMSc in International Business, (Graduate Programme) Final Thesis
Publication date2012
Number of pages81