Size, Book-to-Market, Volatility and Stock Returns: Evidence from Amman Stock Exchange (ASE)

Fama and French (1998) investigated the superiority of value-glamour strategy in 13 developed markets as well as in 16 emerging markets. They confirmed the value premium in 12 out of 13 developed markets. However, they hesitated to give a reliable conclusion concerning the emerging market returns for two reasons. First, they used a short time period sample, nine years. Second, they argued that such emerging market returns suffer from high volatility. This paper aims to investigate the value premium using data from Amman Stock Exchange during the period 1980-2000. In particular, this study seeks to examine the validity of value-glamour strategy using book-to-market equity and explore the effect of stock volatility on portfolio returns. This contribution to the extant literature is significant since it introduces stock volatility as a potential explanation of value premium. The study provides evidence suggesting that the value-glamour strategy does not work in Amman Stock Exchange. Consistent with Fama and French's (1998) prediction, stock volatility has an impact in explaining the difference in returns between value and glamour stocks. In addition, the study shall provide evidence showing that the underperformance of value-glamour strategy in Amman Stock Exchange is mainly related to stock volatility.Contrarian strategies, book-to-market, behavioral finance, stock volatility, emerging market returns.