PREOCUPACIÓN POR LA VIGENCIA EFECTIVA DE LOS DERECHOS LABORALES

Houge and Loughran (2006) test the existence of a value premium in the monthly return time series of two major market indexes, the S&P 500/BARRA and the Russell 3000. The authors find that while the S&P 500/BARRA value index subset outperforms the growth index during the observation period - as would be predicted by the academic literature - the difference of 11 basis points per month, or 1.32%

per year, is not statistically different from zero.58 _{Houge and Loughran also find the value premium} statistically absent in returns for the relatively smaller cap Russell 3000 equity style indexes. The return for the hedged portfolio, the Russell 3000 value index minus the Russell 3000 growth index is once again statistically insignificant at only 11 basis points per month. The latter findings are especially problematic for investors since research evidence suggests that the value premium predominates in smaller stocks (See Loughran, 1997, and Phalippou, 2008).

This essay extends the survey of market indexes in Houge and Loughran (2006) to help determine whether the authors’ results are special to the S&P or to the Russell index algorithm or to the average size of their constituencies. Monthly returns of a broad array of US equity style and pure style indexes are evaluated and results presented in Table 2. The survey includes numerous S&P/Citigroup value and growth indexes as well as an examination of the Wilshire Target and the Russell 2000 equity style indexes - the latter to facilitate a comparison to results by Dhatt et al. Index return premia are observed by constructing a portfolio consistent with the method in Houge and Loughran (2006) - buying long the value index and selling short the growth index. Tests of mean difference are used to determine whether average monthly returns of the market risk hedging portfolio are statistically different from zero.

Average monthly returns are observed over two overlapping time periods, 330 months from February 1979 to July 2006 (Panel A) and 133 months from July 1995 to July 2006 (Panel B). The choice of the two time periods is necessitated by a need to harmonize the various base dates for index return data. For example, the S&P 500 index has a base price date in Datastream of February 1975 while the Russell 2000 index has a base price date of January 1979 [see notes to Table 2 for the base dates of each index used in the analysis].59

Results in both Panel A and in Panel B are consistent with findings in Houge and Loughran (2006). No statistically significant value premium (v-g) is observed in any of the index return series surveyed in Table 2 regardless of size characteristic. While the value equity style economically outperforms the growth style in all index series in both time periods, the difference in returns in each

58_{Scislaw and Evans (2004) find the S&P/BARRA style index series and those of similar construction to be poor} statistical benchmarks for differentiating between styles. The index series was subsequently discontinued, replaced by the S&P/Citigroup equity style series.

59_{The ending date of July 2006 is a function of the last available data of the Wilshire Target index series before} their replacement by the Dow Jones Wilshire index series. The Dow Jones Wilshire indexes only have reconstructed return histories available from January 1992.

TABLE 2: The value premium in equity index returns

S&P and Russell index series returns are obtained from Datastream. Wilshire Target index series returns are sourced from Wilshire Associates. The beginning date for available Wilshire Target index return data from the source is February 1979; Russell index data: from January 1979; S&P 500: February 1975; S&P pure style indexes, S&P 600 style indexes, and all S&P 1500 data: July 1995; Index abbreviations are as follows: S&P 500 (sp500) value (sp500v) and growth (sp500g), pure value (sp500pv) and pure growth (sp500pg); Similar treatment for the S&P 600 and 1500 series; Russell 2000 (R2) value (R2v) and growth (R2g); Wilshire Target Large (WTL) value (WTLv) and growth (WTLg) and Wilshire Target Small (WTS) value (WTSv) and growth (WTSg).

Panel A: February 1979 to July 2006 (n = 330)

Large Cap Style Indexes Small Cap Style Indexes Index Series Avg Return % t-stat Index Series Avg Return % t-stat WTLg 1.15 4.24 WTSg 1.19 3.56 WTLv 1.19 5.46 WTSv 1.4 6.38 v-g 0.04 0.21 v-g 0.21 0.98 sp500g 1.08 4.14 R2g 1.01 2.71 sp500v 1.15 4.99 R2v 1.31 5.06 v-g 0.08 0.59 v-g 0.29 1.52

Panel B: July 1995 to July 2006 (n = 133)

Large Cap Style Indexes Small Cap Style Indexes Broad Market Style Indexes Index Series Avg. Return % t-stat Index Series Avg. Return % t-stat Index Series Avg. Return % t-stat sp500g 0.81 1.96 WTSg 0.89 1.78 sp1500g 0.89 2.2 sp500v 0.93 2.47 WTSv 1.11 3.01 sp1500v 0.92 3.00 v-g 0.12 0.47 v-g 0.22 0.64 v-g 0.03 0.11 sp500pg 1.17 1.92 sp600pg 1.22 2.19 sp1500pg 1.21 2.45 sp500pv 1.18 2.91 sp600pv 1.28 3.00 sp1500pv 1.1 3.15 v-g 0.01 0.01 v-g 0.06 0.18 v-g -0.11 -0.31 WTLg 0.89 2.05 R2g 0.71 1.12 WTLv 0.97 2.74 R2v 1.17 3.07 v-g 0.08 0.24 v-g 0.46 1.13

instance is not statistically distinguishable from zero. As expected, the small cap value premium is relatively stronger than the large cap premium during both time periods. For example, The Wilshire Target Small Cap (WTS) value premium in Panel A is 0.21% per month (2.52% per year) while its Wilshire Target Large Cap (WTL) counterpart generates only a 0.04% premium (0.48% per year). The relationship

is in the same direction and of similar size for the Wilshire small and large cap indexes for the shorter, more recent time period shown in Panel B of Table 3 (0.22% and 0.08% respectively).60

The pure style index series offered by S&P/Citigroup might be expected to produce a larger value premium than a traditional, less focused index product. The pure style index series, analogous to the more extreme high and low book-to-market quintiles in Fama and French (1993), is strategically constructed to represent the more focused style definitions used by S&P. However, results in Panel B for large cap style indexes show no meaningful value premium for either the normal S&P 500/Citigroup series (sp500g and sp500v) or its purer style product (sp500pg and sp500pv). Average monthly returns for the value and growth series are higher for the pure product, but the value premium is not improved. In fact, the value premium is actually weaker, averaging 0.01% per month for the S&P 500/Citigroup large cap pure style (sp500pv-g) compared to 0.12% for the traditional large cap S&P 500/Citigroup index series (sp500v-g). Again, both premiums are statistically indistinguishable from zero. The complexity of the style definitions shown previously in Table 1 may be the culprit.

Dhatt et al. find a statistically significant value premium in the small cap Russell 2000 index constituency. The choice of the Russell 2000 index by the authors may not have been accidental. Compared to other indexes in Table 2 , the value premium in the Russell 2000 index (R2v-g) is the strongest of any examined during both the longer observation period in Panel A (0.29%, t = 1.52) and the shorter period shown in Panel B (0.46%, t = 1.13). Economically, the small cap Russell 2000 value index provides a 5.52% per year premium over its growth counterpart during the more volatile short sample period.