GOUTAI JUNAN SECURITIIES Value Strategies Fama French EMH Irrational Behavior Naive strategies Contrarian / B M B/P / E/P / D/P / C/P

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GOUTAI JUNAN SECURITIIES Value Strategies Fama French EMH Irrational Behavior Naive strategies Contrarian / B M B/P / E/P / D/P / C/P 1995-2002 1 1995-2002 8 BP 14.20% 8.97% EP 23.03% 14.86% 2 3 6 2

/ B M B/P / E/P / D/P / C/P Glamour stocks Value Strategies B/M Fama French 1992,1995,1997 Lakonishok,Shleifer Vishny 1994 Fama French 1997 Hart,Slagter Dijk 2001 Fama French EMH CAPM APT Fama French 1992,1995,1997 Irrational Behavior Lakonishok,Shleifer Vishny 1994 Porta, Lakonishok,Shleifer Vishny 1997 LSV Contrarian Model B/M E/P B/M Naive Naive strategies Contrarian 3

Fama French 1997 Hart,Slagter Dijk 2001 Chan Hamao Lakonishok 1991 1 Fama French 1997 1975-95 7.6% 13 12 1 1 10.00% 9.00% 8.00% 7.00% 7.60% 6.80% 7.65% 6.00% 5.56% 5.00% 4.00% 3.00% 2.00% H-LB/M H-LE/P H-LC/P H-LD/P H L B M E P C D H-LB/M B/M Fama and French, 1997, Value versus Growth: the International Evidence, University of Chicago, Working Paper. B/M C/P D/P B/P E/P D/P C/P 16 B/M 16.91% 2 4

2 20.00% 16.91% 15.00% 14.13% 14.89% 10.00% 10.43% 8.70% 5.00% 4.04% 0.00% H-LB/M H-LE/P S-B S-B (Fundamentally Riskier)? Fama Markowitz Fama Size B/P the Cross-Sectional Variance Behavior of Earnings B/P Fama French 1993,1995 Lakonishok Agency Problem Cohen Cohen, Polk Vuolteenaho 2001 Present-Value Model 15 15 5

B/M Persistence B/M B/M Persistence 20% 58% 26% B/M 15 B/M Dispersion 20% 80% B/M 20% 80% B/P E/P D/P C/P 30% 30% 8 E C D/P 30% D/P 200 E/P 30% 1995 1 1 2002 12 31 C/P 1999 1 1 2002 12 31 8 1995-2002 1999-2002 6

7 BP 3 BP 1995-2002 HBP BP LBP BP 4 BP 1999-2002 -100.00% 0.00% 100.00% 200.00% 300.00% 400.00% 500.00% 600.00% 95-1-3 95-4-3 95-7-3 95-10-3 96-1-3 96-4-3 96-7-3 96-10-3 97-1-3 97-4-3 97-7-3 97-10-3 98-1-3 98-4-3 98-7-3 98-10-3 99-1-3 99-4-3 99-7-3 99-10-3 00-1-3 00-4-3 00-7-3 00-10-3 01-1-3 01-4-3 01-7-3 01-10-3 02-1-3 02-4-3 02-7-3 02-10-3 HPB LPB -10.00% 10.00% 30.00% 50.00% 70.00% 90.00% 110.00% 99-1-4 99-3-4 99-5-4 99-7-4 99-9-4 99-11-4 00-1-4 00-3-4 00-5-4 00-7-4 00-9-4 00-11-4 01-1-4 01-3-4 01-5-4 01-7-4 01-9-4 01-11-4 02-1-4 02-3-4 02-5-4 02-7-4 02-9-4 02-11-4 HBP LBP

5 BP H-LBP 1 450.00% 400.00% 350.00% 300.00% 250.00% 200.00% 150.00% 100.00% 50.00% 0.00% -50.00% 95-1-3 95-4-3 95-7-3 95-10-3 96-1-3 96-4-3 96-7-3 96-10-3 97-1-3 97-4-3 97-7-3 97-10-3 98-1-3 98-4-3 98-7-3 98-10-3 99-1-3 99-4-3 99-7-3 99-10-3 00-1-3 00-4-3 00-7-3 00-10-3 01-1-3 01-4-3 01-7-3 01-10-3 02-1-3 02-4-3 02-7-3 02-10-3 H-LBP 1995-2002 8 BP 254% 14.20% 8.97% 1999-2002 BP 29.51% 7.38% 4.37% H-LBP 0.96 3-5 H-LBP 1 H-LBP 8

9 EP 6 EP 1995-2002 7 EP 1999-2002 -100.00% 0.00% 100.00% 200.00% 300.00% 400.00% 500.00% 600.00% 700.00% 800.00% 900.00% 95-1-3 95-4-3 95-7-3 95-10-3 96-1-3 96-4-3 96-7-3 96-10-3 97-1-3 97-4-3 97-7-3 97-10-3 98-1-3 98-4-3 98-7-3 98-10-3 99-1-3 99-4-3 99-7-3 99-10-3 00-1-3 00-4-3 00-7-3 00-10-3 01-1-3 01-4-3 01-7-3 01-10-3 02-1-3 02-4-3 02-7-3 02-10-3 HEP LEP -20.00% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 99-1-4 99-3-4 99-5-4 99-7-4 99-9-4 99-11-4 00-1-4 00-3-4 00-5-4 00-7-4 00-9-4 00-11-4 01-1-4 01-3-4 01-5-4 01-7-4 01-9-4 01-11-4 02-1-4 02-3-4 02-5-4 02-7-4 02-9-4 02-11-4 HEP LEP

8 EP H-LEP 800.00% 700.00% 600.00% 500.00% 400.00% 300.00% 200.00% 100.00% 0.00% -100.00% 95-1-3 95-4-3 95-7-3 95-10-3 96-1-3 96-4-3 96-7-3 96-10-3 97-1-3 97-4-3 97-7-3 97-10-3 98-1-3 98-4-3 98-7-3 98-10-3 99-1-3 99-4-3 99-7-3 99-10-3 00-1-3 00-4-3 00-7-3 00-10-3 01-1-3 01-4-3 01-7-3 01-10-3 02-1-3 02-4-3 02-7-3 02-10-3 H-LEP 1995-2002 8 EP 471% 23.03% 14.86% 1999-2002 EP 18.13% 3.82% 2.95% 6-8 H-LEP 0.98 1996-1997 H-LEP, 1999 H-LEP DP CP DP 1999 1999 C/P 10

α BP EP 1995-2002 8 α 7.15% 10.82% α -3.53% -5.63% 1999-2002 4 BP EP α 2.87% 2.26% α -1.97% -0.53% 1 2 Fama French Size B/M 1 1, HEP 0.92, 1 1995-2002 HBP LBP HEP LEP 0.0038 0.0017 0.0045 0.0013 0.0024 0.0443 0.0443 0.0427 0.0572 0.0452 0.1883 0.0464 0.2471 0.0168 0.0986 Alphas 0.0015-0.0007 0.0023-0.0012 - Betas 0.9516 0.9917 0.9172 1.0138-0.8302 0.9160 0.8301 0.9024 - R R = α + β ( R R ) + e wi f mi f i R wi R f 2.5% R mi Alphas Betas t 5% 2 1999-2002 HBP LBP HEP LEP 0.0019 0.0009 0.0018 0.0012 0.0013 0.0327 0.0326 0.0316 0.0329 0.0312 0.0840 0.0207 0.0774 0.0392% 0.0479 Alphas 0.0006-0.0004 * 0.0005-0.0001 * - Betas 1.0166 0.9922 0.9843 1.0236-0.9456 0.9061 0.9453 0.9456 - * t 10% 5% 1 9 11

9 1999 HBP LBP 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 1996 1997 1998 1999 2000 2001 LBP HBP 1999 PBH PBL 4-5 5 l 2 B/M B/M B/M 5 BP 1999-2002 PB 10 1 8 1995 1996 1998 2001 2002 3 l 12

10 1 12.00 10.00 8.00 6.00 4.00 2.00 0.00 95-2-1 95-5-1 95-8-1 95-11-1 96-2-1 96-5-1 96-8-1 96-11-1 97-2-1 97-5-1 97-8-1 97-11-1 98-2-1 98-5-1 98-8-1 98-11-1 PBV PBG Spread 99-2-1 99-5-1 99-8-1 99-11-1 00-2-1 00-5-1 00-8-1 00-11-1 01-2-1 PBV= PBG Spread=PBG-PBV 01-5-1 01-8-1 01-11-1 02-2-1 02-5-1 02-8-1 02-11-1 3 Timing Timing 1 3 6 6 ER = 0.4505 0. 1426 PB G 6 V R 2 =0.2884 1882 (29.70) (-27.63) ER 6 = 6 PB G-V = t 6 6 Cohen PB G-V 8 PB G-V 11 5 PB G-V PB G-V 13

11 PB G-V 2500 9 8 2000 7 6 1500 5 1000 4 3 500 2 1 0 0 95-2-6 95-5-2 95-7-25 95-10-19 96-1-12 96-4-19 96-7-15 96-10-10 97-1-6 97-4-14 97-7-11 97-10-8 97-12-31 98-4-10 98-7-6 98-9-28 98-12-23 99-4-6 99-6-30 99-9-22 99-12-23 00-4-3 00-7-3 00-9-25 00-12-25 01-4-3 01-7-3 01-9-25 01-12-25 02-4-5 02-7-5 02-9-27 02-12-30 PBG-V 1995-2002 8 BP 14.20% 8.97% EP 23.03% 14.86% 6 PB G-V 14

Chan, Louis K.C., Yasushi Hamao, and Josef Lakonishok, 1991, Fundamentals and Stock Returns, The Journal of Finance, Volume 46, 1739-1789. Eugene F. Fama and Kenneth R. French, 1992, The Cross-Section of Expected Stock Returns, The Journal of Finance, Volume 47, 427-465. Eugene F. Fama and Kenneth R. French, 1995, Size and Book-to-market Factors in Earnings and returns, The Journal of Finance, Volume 50, 131-155. Eugene F. Fama and Kenneth R. French, 1997, Value versus Growth: The International Evidence, University of Chicago, Working Paper. Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, 1994,Contrarian Investment Extrapolation and Risk, The Journal of Finance, Volume 49,1541-1578. Jaap van der Hart, Erica Slagter, and Dick van Dijk,2001,Stock Selection Strategies in Emerging Markets, Tinbergen Institute Discussion Paper. Kent Daniel and Sheridan Titaman, 1997, Evidence on the Characteristics of Cross-Sectional Variation in Stock Returns, The Journal of Finance, Volume 52,1-33. Rafael La Porta,Josef Lakonishok, Andrei Shleifer, and Robert W. Vishny, 1997,Good News for Value Stocks: Further Evidence on Market Efficiency, The Journal of Finance, Volume 52,859-874. Randolph B. Cohen, Christopher Polk, and Tuomo Vuolteenaho,2001,The Value Spread, NBER Working Paper 8284. 15