Explanation of Value Premium on the Dhaka Stock Exchange: Risk and Firm Size

This paper provides explanation of value premium on the Dhaka Stock Exchange from 2000–2009 and a search process involving both price to earnings (P/E) and price to book value (P/B) ratios. The purpose of this paper is to examine the impact of ‘risk ’ and ‘firm size ’ on value premium on the Dhaka Stock Exchange. Based on P/E ratio, the risk for value portfolio is positively correlated with mean annual value premium. On the other hand, the risk for growth portfolios is negatively correlated with mean annual value premium. However, based on P/B ratio, the relationship between risk and value premium is not significant. The study found that, relatively higher positive and negative returns of small value and small growth stocks respectively have effect on the value premium for both the multiples and relatively higher negative returns of large growth stocks have also the effect on the value premium for P/B multiple. Comparatively small value stocks perform better in the Dhaka Stock Exchange during the study perio