Value versus growth: Australian evidence

Value versus growth: Australian evidence Fama and French (1992) and Lakonishok, Shleifer and Vishny (1994) show that value stocks earn substantially higher returns than growth stocks. Barbee, Mukherji and Raines (1996) and Leledakis and Davidson (2001) show that the ratio of sales-to-price and debt-to-equity are better predictors of average equity returns than book-to-market equity and firm size. In this paper, we evaluate the ability of book-to-market, sales-to-price, earnings-to-price, cash flow-to-price, debt-to-equity and size in explaining equity returns using data drawn from the Australian equities market. Although our findings show that sales-to-price, earnings-to-price and cash flow-to-price are significant in explaining cross-sectional variation in equity returns, we conclude that on balance, the book-to-market ratio is the superior value/glamour proxy