Value and size investment strategies during the global financial crisis: evidence from the South African equity market

Value/growth and size investment strategies involve the creation of equity portfolios on the bases, respectively, of intrinsic value relative to market value and market capitalisation. The propositions that a portfolio of high relative intrinsic value shares anomalously outperforms a low intrinsic value portfolio (in other words, there is a value premium) and a portfolio of low market capitalisation shares outperforms big company shares (a size effect) have attracted a great deal of academic and professional attention in recent decades. This paper examines the value premium and the size effect in the context of the South African equity market for the period July 2006 to June 2012, which includes the global financial crisis and its continuing economic aftermath. Two specific issues are investigated: firstly, whether the value premium and size effect exist in this market and this time frame, and secondly, whether the evidence in this context provides any support for a rational investor explanation for the observed state of the equity market. In terms of the first research objective, statistically significant results are found in support of the existence of the value premium in the specific context of small shares and the size effect in the context of value shares. In terms of the second, some evidence is presented that may support the argument that these particular equity market anomalies are not associated with differences in risk.