Evaluating Glamour Stock Performance vs. Value Stock in Russia

This report evaluates the performance of glamour stocks versus value stocks in the Russian market. The study aims to build a model to predict the future growth of both glamour and value stocks, addressing the uncertainty in forecasting their potential. The research employs a quantitative approach, utilizing secondary data from the Bloomberg website, with dependent variables including the growth rate of glamour and value companies, and independent variables such as return on stocks, price-to-book ratio, price-to-earnings ratio, equity price, and book-to-market ratio. The methodology involves descriptive and correlational study designs, including summary statistics, graphical analysis, correlation analysis, ANOVA, and regression analysis. The report examines the background of the Russian stock market, the Moscow Exchange, and existing literature on glamour and value stocks, including their comparison, the impact of book-to-market ratios, arbitrage risk, and investor sophistication. The study formulates hypotheses regarding the association and difference in growth rates, and the predictability of future growth using financial ratios, with findings expected to benefit business analysts, stock brokers, individual companies, investors, government, academicians, and economists.

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EVALUATING THE PERFORMANCE OF GLAMOUR STOCK VERSUS THE
PERFORMANCE OF VALUE STOCK:
EVIDENCE FROM RUSSIAN MARKET
By: (Student Name)
Name of University:
Author Note:

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Abstract
The companies in the market can be categorised as both glamour and value stocks. The
categorisation of companies as either glamour or value stocks influences the decisions of the
investors in terms of the choice they make in investments. The choice of investments depends on
various aspects. However, it is undeniable that majority of the investors will make investment
choices depending on the expected returns and the expected growth of the company- going
concern. Therefore, besides making investments based purely on whether a company is glamour
or a value stock, it is important to investigate whether there is any difference in the expected
returns and growth rates of these two categories of companies.
The focus of this study is to address the uncertainty that exists in determining the possible or
expected future growth of both the glamour stock and the value stock companies. The model for
predicting the future growth of both the glamour and value stock will be built using the
regression analysis technique. The research question is whether we can evaluate the performance
of both glamour stock and value stock by building a model to predict or forecast the expected
future growth rate. The main objective is to predict the future growth of both glamour and value
stock.
The study will use secondary data. The data will be collected from the Bloomberg website. The
dependent variable will be the growth rate of glamour and value companies. On the other hand,
the independent variables will be the return on stocks, price to book ratio, price to earnings ratio,
equity price and book to market ratio. The study will adopt both descriptive and correlational
study designs. The specific analysis that will be conducted are the analysis of summary statistics,
graphical analysis (histograms and line graphs), testing for mediation using pair- wise correlation
analysis, analysis of variance (ANOVA) and regression analysis.

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Table of Contents
CHAPTER ONE..............................................................................................................................4
1.0. Introduction...........................................................................................................................4
1.1. Research Question................................................................................................................4
1.2. Background of the study.......................................................................................................5
1.3. Objectives of the Study.........................................................................................................6
1.4. Description of Data...............................................................................................................7
1.5. Hypotheses............................................................................................................................8
1.6. Significance of the study......................................................................................................9
CHAPTER TWO...........................................................................................................................10
2.0. Literature Review...................................................................................................................10
2.1. Value Stock.........................................................................................................................10
2.2. Glamour Stock....................................................................................................................11
2.3. Value Stocks vs. Glamour Stocks.......................................................................................12
2.4. Book-to-Market Ratio.........................................................................................................13
2.5. Arbitrage Risk.....................................................................................................................15
2.6. Investor Sophistication.......................................................................................................15
2.7. Transaction Costs................................................................................................................16
2.8.1. Performance of contrarian strategies...............................................................................17
2.9. Do glamour firms invest in large stocks?...........................................................................19
2.10. Do the glamour firms invest more compared to the value firms?....................................20
CHAPTER THREE.......................................................................................................................22
3.0. Research Methodology.......................................................................................................22
3.1. Research Design..............................................................................................................22
3.2. Data Collection...............................................................................................................23
3.3. Data Analysis Methods and Tools..................................................................................23
3.4.1. Ethical considerations......................................................................................................26
3.4.2. Researcher Position.........................................................................................................26
3.4.3. Rapport and Reflexivity...................................................................................................27
3.4.4. Consent............................................................................................................................27
3.4.5. Confidentiality.................................................................................................................28
3.4.6. Anonymity.......................................................................................................................28
3.4.7. Professional Separation...................................................................................................29
References......................................................................................................................................30

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CHAPTER ONE
1.0. Introduction
The introduction chapter outlines a detailed background information of the study. The
introduction also outlines the research question and the objectives of the study. The other parts of
the introduction are the background information of the study, description of the data set, the
hypotheses of the study and the relevance of the study.
1.1. Research Question
The purpose of this research is to provide a vivid comparison between the glamour and value
stock. The comparison of glamour stock and value stock is meant to improve investment
decision making in the Russian Stock market. The process of making decision on the stocks to
invest in can be improved by proper investigation of the expected returns of various companies.
Investigating the expected returns of companies is an important investment criterion because it
provides the ground for forecasting the possible expansion of the company and its existence.
This study seeks to provide appropriate model for forecasting future returns of both value stock
and glamour stocks. Therefore, the research question is whether we can forecast the performance
of both glamour stock and value stock by building a model to predict or forecast the expected
future growth rate.
1.2. Background of the study
The background of the study outlines a review of the study area which is the Russian stock
market. Background of the study also outlines the current information about the stock market in

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Russia as well as brief review of the previous studies on the topic of glamour and value stocks.
The largest stock market in Russia is known as the Moscow Exchange (MOEX). The Moscow
Exchange has two hundred and nineteen (2019) listed companies. The exchange has a market
capitalization of about US $600 billion. The know indices in the Moscow Exchange are the
Moscow Exchange index and the Russian Securities Trading System (RTS) index.
The Moscow Exchange was formed in 2011 by a merger between the Moscow Interbank
currency Exchange and the Russian Trading Securities System (RTS). The Moscow Exchange is
currently the largest exchange group in Russia and it trades in several products. The major
products that are traded in the Moscow exchange include the equities, bonds, derivatives, foreign
exchange market, money market and the precious metals.
There are several studies that have been conducted about glamour and the value stocks both in
Russia and across the globe. An in depth review of the previous studies is available in the
literature review section. However, it is crucial to mention some of the most relevant studies that
have been previous conducted about glamour and value stocks. A quick review of the previous
studies helps to clearly outline the gap that this study is addressing.
There are a number of relevant studies that have been on topic of glamour and value stocks. For
example, a study had been done to explore the influence of customer perceptions from the
market on a firm’s return characteristics in the stock market. The study focused on the
comparison between the glamour stocks and the value stocks the United States stock market and
not the Russian Market.
A study was conducted that applied cross- sectional variation between glamour and value stock
portfolios to address the possible relationship between the misevaluation and the foxed

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investments. Similarly, there was a research that was conducted to investigate the fundamentals
and systematic risk in stock markets.
The other relevant study is an investigation of the performance of high and low book- to- market
stocks with strong financial signals. Similarly, a study has been done to investigate the
predictability of aggregate stock market returns with evidence based on glamour and value
stocks.
1.3. Objectives of the Study
The objectives of a research are the things that the study aims to achieve at the end of the study.
The objectives forms the basis of the study and the specific analysis to be conducted. The
objectives can be categorised into the main objective and minor objectives. In our scenario, the
main objective is to predict the future growth of both glamour and value stock. On the other
hand, the minor objectives include:
1. To compare the various return on stocks, price to book ratio, price to earnings ratio,
equity price and book to market ratio of glamour and value stock.
2. To investigate the association between the growth rates of glamour stock and the growth
rate of value stock.
3. To investigate whether there is any significant difference in the average growth rates of
glamour and value stocks.
4. Predict the rate of future growth of both glamour and value stock using return on stocks,
price to book ratio, price to earnings ratio, equity price and book to market ratio.
1.4. Description of Data

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The data set will be collected from the Bloomberg website. The data will be collected and used
to compute the dependent and independent variables. The dependent variable will be the growth
rate of glamour and value companies. On the other hand, the independent variables will be the
return on stocks, price to book ratio, price to earnings ratio, equity price and book to market
ratio.
The value of future growth is the value of the returns of individual companies that are listed in
the Moscow Exchange. Return on stocks will be obtained by subtracting the value of a stock at
the beginning of the investment period from the value of the investment at the end of the
investment period. The value of a stock in this scenario is the price of a stock in the Moscow
Exchange. The price to book ratio will be calculated by dividing stock price per share by the
book value per share. The price to book ratio indicates the performance of a stock. The price per
earnings ratio is the amount of money that an investor will pay for a given company’s $1
earnings. Equity price will be calculated by dividing the total shareholder’s equity by the total
assets of the firm. Therefore, the calculation of equity price requires the values from a balance
sheet of a firm. The book to market ratio is a comparison between the books of a company and
the books of the market. Therefore, book to market ratio will be calculated by dividing the book
values of a company by the market values.
The parameters in the above paragraphs demonstrate that all the data points are numerical. The
data set that will be used is quantitative. Therefore, the analysis that will be conducted are those
that suit quantitative data sets.
1.5. Hypotheses
A hypothesis is an assertion or a statement about a phenomenon, the truth of which is not known
and can be tested. The truth value of a hypothesis is tested using various appropriate techniques

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and appropriate conclusions and inferences are made. A hypothesis stated by stating both the null
and the alternative hypothesis. A null hypothesis is stated negatively and it is stated first. A null
hypothesis states that there is no relationship between the variables. A null hypothesis is denoted
by H0. An alternative on the other hand is stated positively and it is stated after the null
hypothesis. An alternative hypothesis states that there is a relationship between the variables. An
alternative hypothesis is denoted by H1. In our scenario, the following hypotheses will be tested:
1. Ho: There is no association between the growth rates of glamour stock and the growth
rate of value stock
H1: There is association between the growth rates of glamour stock and the growth rate of
value stock
2. Ho: There is no significant difference in the average growth rates of glamour and value
stocks.
H1: There is a significant difference in the average growth rates of glamour and value
stocks.
3. H0: The rate of future growth of glamour and value stock cannot be predicted using return
on stocks, price to book ratio, price to earnings ratio, equity price and book to market
ratio
H1: The rate of future growth of glamour and value stock can be predicted using return on
stocks, price to book ratio, price to earnings ratio, equity price and book to market ratio
1.6. Significance of the study

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This study will be significant to various stakeholders. The major stakeholders that will benefit
from this study are the business analysts, stock brokers and traders, individual companies,
individual investors, the government, academicians and the economists. The business analysts
will be able to use the findings from this study to investigate the current performance as well as
the future performance of the various stocks in the Russian market. The stock brokers will use
the findings from this study to appropriately advice their clients on the best stocks to trade on as
well as acting appropriately on behalf of their clients. The individual companies will use the
findings from this research to investigate their expected growth rates. The companies will also
use the findings to determine whether their expected growth rates matches the findings on this
study. The government and economists will use the findings from this research to determine the
level of economic growth. The government will be at a point to evaluate whether the expected
growth matches its expectations and act appropriately through regulatory measures. The findings
from this research will add knowledge to the existing publications about the topic. Therefore, it
will be suitable for academicians researching on the same topic. Similarly, this study will
identify some gaps and recommend further study.

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CHAPTER TWO
2.0. Literature Review
2.1. Value Stock
Value stock refers to a security that is trading less than expected price given the key performance
indicators and the performance of the company are the stock itself. Value stocks characteristics
can be lower price to book ratio, a lower price to earnings ratio and high dividend yield. Since
the price of the underlying equity may not be equivalent to the company's performance, investors
in value stocks try to capitalise on the inefficiencies present in the market. Value stock will
generally have a lower equity price than the stock prices of other companies operating in the
same industry. On a general note, a value stock is most likely come from a mature company
facing temporary negative events, but it might have a stable dividend issuance. Value stocks are
often contrasted with growth stocks where value stocks are considered comparatively riskier then
growth stocks. In order to turn the value stock towards positive side, it is important for the
market to change its perceptions towards value stock and the company. This can be riskier than a
growth entity developing. The risk factor makes value stock more desirable and is likely to

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provide a higher long-term return. Since a value stock has considerable undervalued position, it
might take time for a value stock investing duration.
2.2. Glamour Stock
Glamour stocks are widely popular shares believed to increase in value faster than any other
share in the market. Glamour stocks are considered as hot stocks by the investors as their value
increases even in a bull market, which encourages buying more shares. These stocks have very
high price-earnings ratio which is often favoured by the buyers. In this context, price-earnings
ratio helps in calculating the current share price of a company in comparison to its earnings per
share. These types of stocks are preferred by both individual and institutional investors because
of its potential earnings. On the contrary, the authors have suggested that glamour stocks may
sometimes fail to fulfil the expectations of the investors1. It can also be identified that the price of
glamour shares increases because investors might purchase more if that have performed well.
The probability of the success of a glamour stock is considerably low as they mostly belong to
2start-ups and fast-growing companies. The larger than normal demand of glamour stocks makes
it hot stock among investors. Contrarian investors tend to invest against other related stocks in
the market as they follow the markets against the herd. These investors generally purchase
under-priced value stocks and later sell the high-priced stocks. Glamour stocks still need to
1 E. F. Fama, and K. R. French, 1998. Value versus growth: The International Evidence. Journal
of Finance, vol. 53, no. 6, p.1975-1999
2 E. F. Fama, and K. R. French, 1998. Value versus growth: The International Evidence. Journal
of Finance, vol. 53, no. 6, p.1975-1999

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create a good reputation the market and have good potential. In order to be successful in the
marketplace, glamour stocks must be of big companies rather than of start-ups.
2.3. Value Stocks vs. Glamour Stocks
Stock analysts have identified that value strategies often outperform the market. The stocks
having high earning price ratios earn higher returns in the long run3. Many researchers have
identified that the stocks having high book relative to market values of assets may outperform
the market. Countries like U.S. and Japan show results of high ratio of cash flow to price giving
higher returns and stocks having higher earnings price ratios earn higher returns. In previous
researches it has been identified that value stocks have considerably outperformed glamour
stocks worldwide. It is also been identified in previous resources that the purchase of
undervalued shares yields some value by use of only one simple ratio such as price to book.
There can be numerous strategies a company can use for the valuation of its shares. A simple
change in the strategy by the company can create valuation differences4. Therefore, it is
suggested that companies stick to their strategies in order to achieve great returns. The question
also arises the glamour stocks are less risky than value stocks. In order to be fundamentally
3 J. Lakonishok, A. Shleifer, and R.W. Vishny, 1993. NBER Working Paper Series National
Bureau of Economic Research.
4 J.A. Doukas, C. Kim, and C. Pantzalis, 2002. A Test of the Errors-in-Expectations Explanation
of the Value/Glamour Stock Returns Performance: Evidence from Analysts' Forecasts. Journal of
Finance, vol. 57, p.2143-2165

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riskier, the glamour stocks must outperform the value stocks with some regularity. As glamour
stocks are popular among both institutional and individual investors, they constantly
overestimate the future returns from glamour stocks rather than from value stocks. Also, the
actual growth rates of sales, earnings, etc., of glamour stocks are comparatively lower value
stocks in the past researches this is the reason glamour stocks are preferred more than value
stocks.
Glamour strategies have a chance of higher risk in comparison to value stocks when
conventional approaches to fundamental risks are applied. There are models which suggest the
stocks are not priced according to the risk and return they possess and a significant amount of
investment in value stocks may earn abnormal returns. Individual investors may prefer choosing
glamour stocks over value stocks as their safe and yield higher growth rates. They readily invest
in bigger companies as they provide steady earnings and a dividend growth. As per previous
studies, value stocks have poorly performed and would have a higher probability of facing
financial issues whereas glamour stocks have a record of performing well in the past and have
higher chances to be financially stable in the future. Most of the cases investors prefer to earn
returns within a short period rather than waiting for coming years to get the returns. It is also
been identified that if strategies are preferred more over value strategies by both institutional and
individual investors, the value stocks will become cheaper and yield a higher average return. The
differences in returns of value and glamour stock will be able to determine the over investment in
glamour stocks and under investment in value stocks. On the contrary, it has been identified that
value strategies outperform glamour strategies which implies that in order to predict future
growth in terms of earnings, investors may make systematic errors.
2.4. Book-to-Market Ratio

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The Book to Market ratio refers to the ratio used to evaluate the financial metrics which is used
to evaluate the current book value of a company to its market value5. The market value is the
price at which the company is believed to be worth by the market or current price of stock of all
outstanding shares. This ratio is typically used by investors to show how the market’s reaction
would be towards the value of a particular stock. This ratio can be put to use for insurance, real
estate companies, financial companies and investment trusts. The formula used for calculating
book-to-market ratio is dividing current closing stock price by the book value per share of the
most current quarter. The ratio may derive that a stock is undervalued if the ratio is less than 1
which means it is a bad investment and the company might not be performing well. The stock is
overvalued when the ratio is greater than 1, which means that the company is performance well.
Despite the limitations, when the book ratios of companies in the same industry are compared, it
helps in providing an insight on market’s perception on the company and its competitors. This
valuation method indicates that the book to market effect is greater for stocks with higher
transaction costs, and lower investor sophistication, that is consistent with the market-mispricing
for the anomaly. There are several studies that show the predictable returns for portfolios long
high in book-to-market stocks over a period of 3 to 5 years and short in low book-to-market
stocks. There can be two possible explanations to this. Firstly, the compensation for risk is
represented by the return to book-to-market portfolio strategies. Secondly, the systematic
mispricing of book-to-market securities gives rise to the return of book-to-market based portfolio
strategies. Mispricing of securities show that marker participants often overestimate their future
earnings from the low book-to-market stocks and underestimate the future earnings from the
5 A. Ali, L. S. Hwangb, M. A. Trombley, 2003. Arbitrage risk and the book-to-market

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book-to-market stocks. There are certain factors involved that correlate to the book-to-market
effect. The effect may be due to mispricing.
2.5. Arbitrage Risk
Arbitrage resources lie mostly in the hands of poorly diversified but specialized traders. It is
important for Arbitrageurs to analyse the stocks they invest in, and since it is a very costly
process, they include not many stocks in their portfolios. Arbitrageurs who are risk averse may
get concerned with the risk in their portfolios. Arbitrageurs often take positions in securities that
are mispriced, there can be traders who can push the prices from fundamentals becomes
available before disconfirming the evidence6. But, Arbitrageurs are more concerned about their
performance in the short run as they utilize the capital provided by investors and these investors
may withdraw their funds if the performance in the short run is seen poor. The Arbitrageurs may
try to keep the ratio of reward-to-risk high over a short period of time.
2.6. Investor Sophistication
Many authors have opined that if high end investors are pre-dominantly indulged into
trading for reasons such as risk management and liquidity which are different from arbitrage,
then a misprice of the stocks might not be there although the arbitrage costs are high7. These
investors may less likely have biased expectations rather than naïve investors about their
expectations from the future earnings may be a source of book-to-market related mispricing. It
6 A. Ali, L. S. Hwangb, M. A. Trombley, 2003. Arbitrage risk and the book-to-market
7 A. Ali, L. S. Hwangb, M. A. Trombley, 2003. Arbitrage risk and the book-to-market

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has been identified that analysts may overestimate the future prospects concerning the future
prospects of low book-to-market companies. Therefore, in order to measure the level of investor
sophistication, the number of institutional owners is used as alternatives. In comparison to the
institutional ownership percentage, the better measure for investor sophistication can be utilizing
the number of institutional owners.
2.7. Transaction Costs
The extent regarding the awareness of the investors is limited by transaction costs that
mostly take place when securities are mispriced8. In other words, securities that deals with higher
transaction costs mostly exhibits greater residual mispricing. The costs that are included by direct
transactions are bid-ask spreads as well as brokerage commissions. The bid-ask spreads as well
as brokerage commissions per share are related inversely to share price as a percentage of share
price9. As a result, share price is used to measure direct transaction costs. The author stated that
indirect transaction costs are regarding as the adverse effects of price that are related to trade thus
bringing about delay in carrying out the transaction. The most imperative aspects of the indirect
costs include dollar-trading volume. Transactions are less likely carried out rapidly if the stocks
are traded thinly. The arbitrage costs takes place due to short selling. In other words, short sellers
require borrowing the shorted securities as well as require repaying the demanded securities10.
8 M. Dempsey, 2010. The book-to-market equity ratio as a proxy for risk: evidence from
Australian markets. Australian Journal of Management, vol. 35, no.1, p.7-21.
9 K. Malinova, and A. Park, 2015. Subsidizing liquidity: The impact of make/take fees on market
quality. The Journal of Finance, vol. 70, no. 2, p.509-536.
10 M. Dempsey, 2010. The book-to-market equity ratio as a proxy for risk: evidence from
Australian markets. Australian Journal of Management, vol. 35, no.1, p.7-21.

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The stocks that deals with substantial institutional proprietorship leads to lower risk related to
short squeeze. The institutional proprietorship acts as a proxy that is used as a percentage related
to the costs of short selling. The cost of short selling is also measured directly that deals with
borrowing prices in the equity leading market. It is only to book-to-market stocks to which short
selling costs apply. The comprehensive measure related to transaction costs is regarded which is
argued stating that investors will trade on information11. A security that deals with high
transaction cost is likely to exploit additionally frequent day-to-day returns that are zero as
compared to the security that deals with low transaction cost. The author stated that the
recurrence that is related to zero day-to-day returns initiates a wide-ranging transaction measure
related to costs. These costs are mostly related to the costs that are incurred while purchasing as
well as selling a commodity as well as service. It represents the labor that is required to initiate a
good or service to the market12.
2.8.1. Performance of contrarian strategies
The market participants perceive that under the extrapolate performance level of the stock
market, the future performance level is aligned with the past performance level. This refers that
the glamour stock will be increased in the future since the growth rate in the past was also
higher. High multiples of price earnings such as operating incomes13, cash flow and the
11 K. Malinova, and A. Park, 2015. Subsidizing liquidity: The impact of make/take fees on
market quality. The Journal of Finance, vol. 70, no. 2, p.509-536.
12 X. Wang, P. Garcia, and S.H. Irwin, 2013. The behavior of bid-ask spreads in the
electronically-traded corn futures market. American Journal of Agricultural Economics, vol. 96,
no. 2, p.557-577.
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dividends will be increased sharply with the rising growth rate14. Therefore, it can be mentioned
that the growth rate of the glamour stock is dependent upon both on the high past growth rate and
on the high multiple rate. On the other hand, the concept of glamour stock is distinct from the
temporary loser since the past growth rate of it was low, however, it could be predicted that the
rate would be declined in terms of lower multiple rate. The lower growth rate would be
recovered in the future by improving the lower growth rate. The glamour stock can be
differentiated from the temporary winner.
Similar to the glamour stock, it can be said that if the value stock has also the lower growth rate
in the past, then it can be perceived that the growth rate will be lower in the future along with its
lower multiple rate. As per the contrarian strategy, the glamour stock is overpriced whereas the
value stock is under-priced, and the risk characteristics are given15. From this point, it can be
suggested that the investors require purchasing value stocks as well as need to sell the glamour
stocks. In this context, it can be inferred that the glamour firms require to bear higher stock
market prices, which is related to the accounting based measurements. On the contrary, the value
firms usually bear the lower stock market prices16. For instance, as per the portfolio formation,
usually the value firms outperform the glamour firms.
14 J.D. Piotroski, and E.C. So, 2012. ‘Identifying expectation errors in value/glamour strategies:
A fundamental analysis approach’. The Review of Financial Studies, vol. 25, no. 9, p.2841-2875.
15 Z. Yan, and Y. Zhao, 2011. ‘When Two Anomalies Meet: The Post–Earnings Announcement
Drift and the Value–Glamour Anomaly’. Financial Analysts Journal, vol. 67, no. 6, p.46-60.
16 N. Magnuson, 2011. ‘The role of expectations in value and glamour stock returns’. Journal of
Behavioral Finance, vol. 12, no. 2, p.98-115.

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2.9. Do glamour firms invest in large stocks?
In order to derive the conclusion, four major issues are required to be addressed. Firstly, if an
investor would experience the favourable fundamental shock, then it would tend to experience
the higher investment rate in the future. On the contrary, if a firm would overinvest in the stock
market currently, then the overvaluation will lead to experience lower investment in the future17.
Secondly, it is required to examine the stock market returns of the high investment firms in order
to compare the return on high investment glamour along with the high investment value firms.
For instance, the high investment firms have similar investment opportunities. Investment
decisions are reflected on the perception of the outside investors and hence, they would serve a
signal to the investors and the firms would get good prospects on the investments. Therefore,
based on the discussion, it can be inferred that there would not be any systematic differences in
the returns to portfolios between the high-invested glamour firms and the value firms if the
misevaluation were absent. On the contrary, under the situation of overvaluation, it would lead to
occur the situation of overinvestment. In addition, the high-invested glamour firms would
increase the low subsequent returns. Thirdly, the firms would require examining the type of
marginal products of the capital before making any investments. It can be stated that the
fundamental shock would maximise the stock price and therefore, demand for capital by the
firms would be shifted18. Consequently, the marginal product for capital scheduling would be
17 C. Duong, G. Pescetto, and D. Santamaria, 2014. ‘How value–glamour investors use financial
information: UK evidence of investors’ confirmation bias’. The European Journal of Finance,
vol. 20, no. 6, p.524-549.
18 K. Koh, 2011. ‘Value or glamour? An empirical investigation of the effect of celebrity CEOs
on financial reporting practices and firm performance’. Accounting & Finance, vol. 51, no. 2,
p.517-547.

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shifted to the rightward direction. More specifically, at the point of original capital stock, the
capital marginal product would be increased rapidly. On the other hand, in response to the
investment shock, the capital marginal product would be declined gradually. Under the
misevaluation of investment shock, the capital supply curve would be shifted to the downward
direction. The cheaper equity financing would also reflect the movement of the capital supply
curve. Consequently, at the point of portfolio formation, the capital marginal product would be
declined. The reason behind the decreasing capital marginal product is the rising of capital stock,
which is equivalent to the ratio of capital marginal product to the lower cost of capital19.
Fourthly, overreaction tests can determine whether the investments by the glamour firms would
overreact the sales shocks or not.
2.10. Do the glamour firms invest more compared to the value firms?
The investment by the glamour firms and the value firms is dependent upon the investment to the
capital stock ratio. In this context it can be mentioned that the investment by the glamour firms
and the value firms are dramatic in nature, however, it cannot be stated that the stock market
misevaluation would directly affect the real behaviour of the firms20. Purchasing of glamour
stock is able to increase the growing earning when the average rate is given. As a result, it can be
stated that the glamour firms would like to invest more compared to the value firms. However, it
can be said that the investors would need to consider the misevaluation shock in order to
19 K. Anderson and T. Zastawniak, 2017. ‘Glamour, value and anchoring on the changing P/E’.
The European Journal of Finance, vol. 23, no. 5, p.375-406.
20 J.D. Piotroski, and E.C. So, 2012. ‘Identifying expectation errors in value/glamour strategies:
A fundamental analysis approach’. The Review of Financial Studies, vol. 25, no. 9, p.2841-2875.

21
perceive the return from the share prices. For instance, since the glamour investment is large, and
then the firms would like to push into the structure of glamour portfolio. Consequently, the cost
of capital of the glamour firms would be declined temporarily in the short run and hence, the
desired stock by the firms would be increased. In a nutshell, it can be inferred that both the
glamour firms and value firms, would rely upon the high ratios to the book to market equity,
cash flow price and earnings to price apart from including the return of shares. Therefore, higher
rate of book to market equity ratio, earring to price ratio and cash flow ratio is related to the
higher average returns by the glamour firms, which would in turn lead to receive the persistent
higher earnings.

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CHAPTER THREE
3.0. Research Methodology
Research methodology chapter outlines the techniques that will be applied in conducting the
research. This chapter describes the research design, data collection and analysis methods.
Methodology also outlines the ethical considerations that will be in place as well as the
researcher’s position. Research methodology also outlines some of the important principles that
will guide this research. The principles that have been discussed include: Ethical consideration,
anonymity, confidentiality and professionalism.
3.1. Research Design
The research designs that this study will adopt are the descriptive and correlation study designs.
A descriptive study design is a technique that is applied to outline the nature or simply describe
the features of a given variable or phenomenon. A descriptive study design is suitable for this
study because one aim of this study is to outline and compare the features of both glamour and
value stock. The corresponding analysis that will be conducted is the descriptive statistics
analysis.
The other study design that will be applied in this research is the correlational study design. A
correlational study design is a technique that is used to outline the existence and nature of
relationships between the variables. Therefore, a correlational study design is suitable in
establishing the existence and nature of the relationship between the rate of growth of the value
stock and the rate of growth of the glamour stock. The corresponding analysis that will be
conducted include; testing for mediation, regression analysis and testing for equality of means by
the use of Analysis of Variance (ANOVA).

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3.2. Data Collection
The method of collecting data is usually determined by the nature of data that is being collected.
The nature of data in this case refers to whether the data is secondary, tertiary or primary. A
primary data is a first- head information that has never been collected or stored by anybody else.
A secondary data on the other hand is collected from the existing primary data. Similarly, tertiary
data is collected from the existing secondary data.
The nature of data that will be used in this study is the secondary data. The data will be collected
from the existing databases with stocks data. The major source of data will be Bloomberg
website. The data that will be collected will consist of the information on the Russia market for a
period of ten years.
3.3. Data Analysis Methods and Tools
The data analysis tool that will be used in this study is Statistical Package for Social Sciences
(SPSS). The specific analyses that will be conducted are, descriptive statistics analysis, testing
for mediation, Analysis of Variance (ANOVA) Test and regression analysis test. The aim of each
test is to help in achieving the objectives of this study.
Descriptive analysis will be done to investigate and compare various aspects of glamour stock
and value stock. Descriptive statistics analysis will investigate and compare the measures of
central tendency, the measures of spread and the measures of position. Therefore, descriptive
analysis will provide a proper comparison of various aspects of glamour and value stocks such as

24
the mean of returns and the average growth rate. Descriptive analysis will also include the
graphical analysis. The graphical analysis techniques that will be used include the line graphs
and histograms. The line graphs will be used to investigate whether the glamour stocks and the
value stocks have some form of trends in their growth rates as well as their returns. The
histograms will be used to compare the earning of and rates of growth of both the glamour and
value stocks over the ten years period. The histogram will also help in establishing the normality
of the data points.
The mediation effects will be tested to investigate whether there is any significant association
between the rate of growth and using return on stocks, price to book ratio, price to earnings ratio,
equity price and book to market ratio. The mediation effect will be tested using pair- wise
correlation analysis. Testing for mediation is appropriate on this scenario because it will enable
us determine the parameters that are related to one another and the nature and strength of their
relationships.
Mediation effects will be tested using a pairwise correlation analysis. A correlation analysis
outlines the nature and strength of the relationships that exists between two variables. The
strength and nature of the relationship that exists between two variables is measured by the value
and sign of a correlation coefficient. The sign of a correlation coefficient can either be positive
(positive association) or negative (negative association). The value of a correlation coefficient
ranges between negative one (-1) and one (1). A correlation coefficient of one (1) is a perfect
correlation coefficient while a correlation coefficient of negative one (-1) is a perfect negative
correlation coefficient. A correlation or association can also be weak or strong. A correlation
coefficient that has a value in the range of zero (0) to zero point five (0.5) is a weak positive
association while a correlation coefficient with a value ranging between zero point five (0.5) and

25
one (1) is a strong positive association. On the other hand, a correlation coefficient that has a
value in the range of zero (0) to negative zero point five (-0.5) is a weak negative association
while a correlation coefficient with a value ranging between negative zero point five (-0.5) and
negative one (-1) is a strong negative association.
Analysis of Variance (ANOVA) will be conducted to establish whether there is any significant
difference in the average growth of glamour stocks and the average growth of value stock.
Testing for the difference in average growth of glamour and value stocks is appropriate since it
will provide a proper aspect of decision- making for the investors.
Regression analysis is conducted to develop a model for predicting the dependent variable using
independent variables. Regression relies on the use of historical values to predict the possible
values in the future. In our scenario, a regression analysis will be conducted to investigate
whether we can predict the future rate of growth using return on stocks, price to book ratio, price
to earnings ratio, equity price and book to market ratio. Two regression analyses will be
conducted; one for the value stock and the other for the glamour stock. The question here is that,
given the values of return on stocks, price to book ratio, price to earnings ratio, equity price and
book to market ratio, can we forecast the possible rate of growth of a stock? The prediction will
be possible through a model that will be developed by regression output. The general form of the
model for predicting the future growth of value stock is outline below.
Gv= B0+ B1 (ROS) + B2 (PTB) + B3 (PTE) + B4 (EQP) + B5 (BTM) where;
Gv= the future growth rate for a value stock
B0= Regression constant representing the error term
B1= Regression coefficient between the future growth rate and return on stock,

26
B2= Regression coefficient between the future growth rate and price to book ratio
B3= Regression coefficient between the future growth rate and price to equity ratio
B4= Regression coefficient between the future growth rate and equity price
B5= Regression coefficient between the future growth rate and book to market ratio
ROS= return on stock
PTB=price to book ratio
PTE=price to equity ratio
EQP=Equity price
BTM= Book to market ratio
Similarly, the regression model for predicting the future growth rate of a glamour stock is
outlined below.
Gg= B0+ B1 (ROS) + B2 (PTB) + B3 (PTE) + B4 (EQP) + B5 (BTM) where;
Gg= the future growth rate for a value stock
B0= Regression constant representing the error term
B1= Regression coefficient between the future growth rate and return on stock,
B2= Regression coefficient between the future growth rate and price to book ratio
B3= Regression coefficient between the future growth rate and price to equity ratio
B4= Regression coefficient between the future growth rate and equity price
B5= Regression coefficient between the future growth rate and book to market ratio

27
ROS= return on stock
PTB=price to book ratio
PTE=price to equity ratio
EQP=Equity price
BTM= Book to market ratio
The output from the regression analysis will also provide the model summary. The summary will
outline the overall regression coefficient between future growth and the independent variables
(R). Similarly, regression summary will outline the suitability of the sampling in making
statistical inferences. The suitability of the sample in making inferences about the population will
be measured by the value of R square. The other important output of regression analysis is the
Analysis of variance (ANOVA) table. The ANOVA table will outline whether there is any
significant difference in the average values of both dependent and independent variables.
3.4.1. Ethical considerations
Exploration shall be carried out under appropriate moral measures. The examination shall record
the perspectives gathered from current information and other techniques of accumulation of
information with the greatest reliability. The results and findings of the examination shall be
accounted for as reliably as possible. There will be no control of the results to accommodate any
intrigue. The information collection procedure will be carried out with the utmost care. There
will be no cases of intentional violation of respondents' privileges at any random time.
3.4.2. Researcher Position

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The research will be aimed at giving data and finding the current truth about estimation values
and excitation values. In this sense, the analyst has no enthusiasm to satisfy or belittle anyone or
any organization that is registered on the Moscow Stock Exchange. The data and findings from
this exploration are intended to support speculators, business researchers and financial specialists
in making sound decisions.
3.4.3. Rapport and Reflexivity
Reflectivity is characterized by being the dimension of the impact that scientists have on the
overall examination procedure that incorporates the exploration theme, detailing the question of
exploration, the decision of the research structure and the procedure of the meeting. As much as
reflectivity is a more prominent theme, analysts will try, as far as possible, to stay away from its
impact on the latest results. The information gathering procedure will be guided in such an
approach to build compatibility with the meetings in question, however, the analyst will remain
focused to maintain a strategic distance from the instances of reflexivity. I adhere to the
destinations of the examination without deviations. In addition, information research will be
done on the collected information without changing or controlling the data in any capacity to fit
my understanding or desires. Congruence of the results with my understanding or wishes will
also not affect the way we report discoveries and make inductions about the population.
Disclosure will simply be made on research findings and the ends and conjectures will be drawn
precisely unbiased.
3.4.4. Consent
This review will be conducted with the consent of the analyst and the individuals and
organizations concerned. The information that will be collected and used in the research will be
collected once an appropriate agreement has been reached between the scientist and those who

29
will provide the information. In this way, there will be no cases of powerful data collection from
auxiliary sources. For situations where meetings will be used, an appropriate and expert demand
will be made to individual concerns. The request will clearly show the reason for the
examination and the idea of the information or reactions that the exploration will seek. For
example, an appropriate request will be made to Bloomerg before any informational index is
obtained from your information file. Records may be obtained after the hosts of a legitimate
claim have been received by the meetings in question.
3.4.5. Confidentiality
The data that respondents will provide through the different information collection systems will
be treated with the most extreme classification. There will be no cases of deliberate disclosure of
respondents' data, unless respondents have acknowledged this. In this way, respondents are
encouraged to trust and provide the most accurate data without fear of compensation or
exploitation. If necessary, specialists will meet with key agencies to ensure that the data provided
are kept secret. In addition, subtleties that may uncover a person's personality, e.g. names or
identification numbers, will not be necessary. However, the examination will use the ethnic root
of the respondent as his/her way of life, as well as other individual data, e.g. the age of the
respondent.
3.4.6. Anonymity
The names of the specialists will be known. However, the characters of respondents will remain
obscure in situations where the examination may include interviews. Personalities will remain
obscure due to the affectability of the topic under consideration. Some respondents may fear
giving the correct reactions because they were cheated later. In addition, some legislatures and
security offices should not give accurate data if their personalities are discovered. Be that as it

30
may, with the lack of a name, the reliability of respondents improves and they are very likely to
provide very accurate data. Some estimates will be taken to reassure people that they have a
good idea of what to expect.
3.4.7. Professional Separation
The competent partition handles the dimension of demonstrable skill that will be used in this
research. The examination will apply the most extreme polished skill. The information gathering
procedure will be conducted in the most expert manner. Those responsible for information care
in Bloomerg will be formally requested. The information will simply be obtained after
appropriate agreement has been reached with the potential administration. The examination
report will be presented expertly simply after legitimate knowledge based on information has
been found. In addition, there will be no rupture of assertion to be made during the examination
procedure.

31
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