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Value and Growth Stock Price Behavior during Stock Market Declines

Article in The Journal of Investing · November 2017

DOI: 10.3905/joi.2017.26.4.041

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 Value and Growth Stock Price Behavior
During Stock Market Declines

Daniel Folkinshteyn, Ph.D.

Associate Professor of Finance
Department of Accounting and Finance
Rohrer College of Business
Rowan University
Glassboro, New Jersey 08028
Email: Folkishteyn@rowan.edu

Gulser Meric, Ph.D.

Professor of Finance
Department of Accounting and Finance
Rohrer College of Business
Rowan University
Glassboro, New Jersey 08028
Email: Meric@rowan.edu

Ilhan Meric*,
Professor of Finance
Department of Finance and Economics
College of Business Administration
Rider University
Lawrenceville, New Jersey 08648
Email: Meric@rider.edu

*Corresponding author.
 Value and Growth Stock Price Behavior
During Stock Market Declines

Abstract

Using data for five major stock market declines during the 1987-2008 period, this paper
provides evidence that value stocks are generally less sensitive to major stock market declines
than growth stocks, controlling for beta, firm size, and industry group. Further analysis using
several hundred different significant market move events between 1980 and 2015 confirms the
observation that value stocks tend to outperform both the market average and growth stocks
during market declines. The implication for investment practitioners is that following a value
strategy does not lead one to assume greater sensitivity to unfavorable market conditions.

The phenomenon of the value premium, the observation that stocks that are priced lower
relative to the fundamentals tend to produce higher returns, is a much-researched topic in
finance. Since its early introduction into the practitioner literature by Graham and Dodd [1934],
and confirmation by academic literature, such as by Basu [1977] and Lakonishok, Shleifer, and
Vishny [1994], the value premium continues to be somewhat of a puzzle, seemingly
contradicting the efficient market hypothesis. Fama and French [1992, 1996] developed and
tested the three factor model, which showed significant improvement over the plain Capital Asset
Pricing Model proposed by Sharpe [1964] and Lintner [1965] in explaining the cross-sectional
variation in stock returns. One of the three factors was based on a common 'value stock' criterion,
book to market value.
Value vs. growth stock investing continues to be an important decision for investors (see
Chan and Lakonishok [2004] and Petkova, Ralitsa, and Zhang [2005]). In this paper, we examine
the behavior of value and growth stocks during short term market declines. The basic economic
framework of consumption smoothing suggests that the behavior of assets during times of crisis,
when wealth is decreasing across the board, is more important than what happens when times are
good (Yogo [2006]). Thus, examining these conditions should be particularly illuminating for the
practitioner of value investing.
The value premium problem has attracted a wide-ranging research interest, resulting in
many possible explanations of this persistent market anomaly. For instance, Jagannathan and
Wang [1996] used a time-varying beta approach to explain variation in stock returns. Petkova,
Ralitsa, and Zhang [2005], using a time-varying risk model, propose that value stock betas tend
to covary positively with expected market risk premium. Lettau and Wachter [2007] build a
model to explain the value premium in the context of a changing discount rate and different
effective cash flow durations for growth and value stocks. The human element has also been
explored, with proposed causes such as the investor behavioral biases described by DeBondt and
Thaler [1985], and agency problems among analysts and institutional investors, as explained by
Hong and Kubik [2003] and Jegadeesh, Kim, Krische, and Lee [2004].
A number of papers attempt to tie some source of risk to value stocks, and thereby claim
that the value premium is nothing more than fair compensation for the extra risk. Lustig and Van
Nieuwerburgh [2005] explain the value premium as due to the risk factor of housing collateral
value, and Yogo [2006] proposes that it is due to low returns for value stocks during recessions,
when consumption falls. Guo, Savickas, Wang and Yang [2009] propose that the value premium
is due to value stocks being riskier than growth stocks in bad economic times, when the price of
risk is high. However, Phalippou [2007] suggests that a number of risk-based theories explaining
the value premium are not supported by data. (For a broader review of related literature, see
Chan and Lakonishok [2004], who present a thorough summary of the academic research on
value and growth investing.) In addition to the practical implications of value investing, our
results will shed some light on one potential source of risk for value stocks, their sensitivity to
short term market declines.
We conduct our study using data for five major stock market declines during the 1987-
2008 period and several hundred stock market declines during the 1980-2015 period. For our
core analysis, we selected a representative sample of five of the largest consecutive days of
market decline in the S&P 500 index (following Wang et al. [2009]; Uygur, Meric, and Meric
[2015]; and Folkinshteyn, Meric, and Meric [2015]), using daily stock price data during the
1987-2008 period. The periods included in the study are presented in Exhibit 1, and are
hereinafter denoted as "major stock market declines". Additional analysis using a number of
other event selection criteria is presented later in the Alternative Specifications Section.

[Exhibit 1 is to be inserted about here]

Our research makes several important contributions to the literature. We document a

consistent pattern of lower than average sensitivity of value stocks to most stock market declines,
in excess of that predicted by beta. We also document that growth stocks have a greater
sensitivity to most major stock market declines. We find that the decline of 2008 was distinct
from the other major stock market declines in our study, wherein equities across the value-
growth continuum were evenly affected. Further analysis using several hundred different
significant market move events between 1980 and 2015 confirms the observation that value
stocks tend to outperform both the market average and growth stocks during stock market
declines.
The paper is organized as follows: We provide information about our data and
methodology in the next section. In the section that follows, we present our test results. We
summarize our findings and present our conclusions in the final section.

DATA AND METHODOLOGY

The daily stock trading prices and returns are obtained from the Center for Research in
Security Prices (CRSP) database. We calculate each stock's event return as the cumulative return
during each of the five major stock market decline periods shown in Exhibit 1.
We use the Research Insight (COMPUSTAT) quarterly database to collect balance sheet
information on the individual securities. For each security and each stock market decline event,
we select the latest available COMPUSTAT quarterly observation within the year prior to the
start of the event. Firms with missing data are excluded from the sample.
We compute the CAPM betas of the stocks using the daily stock returns for the past 90
calendar days and the CRSP-provided returns on a value-weighted index which includes NYSE,
NASDAQ, and ARCA securities. Firms with missing trading prices on key event dates and those
with fewer than 30 trading quotes in the past 90 calendar days are excluded from the sample.
Following Wang et al. [2009], we also exclude firms with a trading price of less than one dollar.
We include firm size (market cap) as a control variable.
Industry dummy variables are commonly used in cross-sectional studies of stock returns
(see, e.g., Fama and French [1988]; Wang et al. [2009]). To control for the industry effect, we
construct five broad industry portfolios (French [2015]) based on SIC codes. The portfolios are
'cnsmr', including consumer durables, nondurables, wholesale, retail, and some services; 'manuf',
including manufacturing, energy, and utilities; 'hitec', including business equipment, telephone
and television transmission; 'hlth', including healthcare, medical equipment, and drugs; and
'allother', which includes mines, construction, building materials, transportation, hotels, business
services, entertainment, and finance.
There are a number of ways to create a growth-value continuum across the universe of
stocks. Although the original Fama and French [1996] model factor is based only on market to
book ratio, both practitioner and academic literature use a number of price to fundamentals ratios
or combinations thereof. Lettau and Wachter [2007] consider ratios of book to market, earnings
to price, dividends to price, and cash flows to price. The CRSP U.S. Large Cap Value Index uses
a combination of book to price, forward earnings to price, historic earnings to price, dividend to
price, and sales to price ratios (CRSP [2015]), while the MSCI USA Value Index, uses book to
price, forward earnings to price, and dividend yield (MSCI [2016]).
We use a combination of three ratios: dividend to price (dividend yield), market to book,
and earnings to price (earnings yield). We classify a stock as a 'growth stock' if it pays no
dividends, has an above-median market to book ratio, and a below-median earnings yield. We
classify a stock as a 'value stock' if it pays dividends, has a below-median market to book ratio,
and an above-median earnings yield.
The data items used in the study from the CRSP and COMPUSTAT databases are
presented in Exhibit 2. We list the variables constructed with the data in Exhibit 3. After
excluding observations with missing values, we winsorize extreme values using robust median-
based measures of center and scale.

[Exhibit 2 is to be inserted about here]

[Exhibit 3 is to be inserted about here]

The descriptive statistics for the sample are presented in Exhibit 4. The statistics in the
exhibit show a pattern of growing firm size over time, both in terms of total assets and market
cap. Mean total assets gradually increases from 891 million in 1987 to 3,862 million in 2008,
which is expected given the general growth of the economy as well as dollar inflation over the
time period. The returns are highly variable within each event sample showing that, even during
significant overall market moves, there is wide variation in the performance of individual stocks.
Growth stocks generally comprise a somewhat greater fraction of the universe of stocks than
value stocks in each period, using our classification criteria (as per the mean of the growth and
value dummy variables).

[Exhibit 4 is to be inserted about here]

RESULTS AND DISCUSSION

Univariate Analysis

We first conduct univariate t-tests for differences in means of the growth and value
classifications, after partitioning the data along the median of major market decline returns
(hereinafter referred to as "strong decline" and "weak decline" subsamples). Exhibit 5, Panels 1-
5, shows the results for the individual events covered in the study, in chronological order. Panel 6
shows the results for the entire sample. For the first four events, there are significantly more
growth firms and significantly fewer value firms in the "strong decline" subsample than the
"weak decline" subsample. For the 2008 market decline, the result is different, where there is no
significant difference on the growth classification, while the value classification shows the
opposite result, with more value firms experiencing strong negative returns.

[Exhibit 5 is to be inserted about here]

Multivariate Analysis

We use the following multivariate regression model for each of the five major stock
market decline events, with the dependent variable being the decline period return:

decline.return = a0 +a1 value + a2 growth + a3 beta + a4 TCap +

+ a5 cnsmr + a6 hitec + a7 hlth + a8 manuf + ɛ (1)

where a0 is a constant (the intercept term), ɛ is the error term, and a1, a2, … a8 are the regression
coefficients. The independent variables in the model are value, growth, beta, size (TCap), and the
dummy variables for the industry portfolios (cnsmr, hitec, hlth, and manuf). The effect of the
fifth portfolio, allother, is left in the intercept.
The multivariate regression analysis results for the five decline periods using Equation
(1) are presented in Exhibit 6. The F statistics indicate that all five regressions in the exhibit are
statistically significant. The explanatory power of the model varies between the events with the
adjusted R-squared ranging from a low of 9 percent for the 2008 event to 46 percent for the 2000
event.1

[Exhibit 6 is to be inserted about here]

For all the events, the regression coefficient of beta is significant and negative, which
indicates that stocks with a higher beta lost more value in all five major stock market declines
relative to lower beta stocks. This result is in line with the CAPM, which predicts that stocks
with higher betas would lose more value in down markets relative to low beta stocks.
The regression coefficient of the size (TCap) variable is significant with a negative sign
for the 1987 event and with a positive sign for the 1998, 2000, and 2008 events. It is not
statistically significant for the 1997 decline. The Fama and French [1992, 1996] three-factor
CAPM argues that large firms are less risky than smaller firms. Therefore, the TCap variable
should have a positive sign in a major stock market decline. The 1998, 2000, and 2008 results
confirm the prediction of the model. However, our results indicate that larger firms lost more
value compared with smaller firms in the 1987 event. There was a major market correction in
stock prices in the 1987 event. Investors might have thought that large firm stocks were more

1 For all regressions, we tested for multicollinearity by calculating Variance Inflation Factors for all variables.
Prior literature suggests that there is no major multicollinearity associated with a variable if the VIF value is less
than 10 (Belsley et al., 2009). All the calculated VIFs in all of our models were less than 2.
overvalued compared with small company stocks prior to the 1987 event.
The coefficients on value and growth indicators are significant for the first four events,
suggesting that value stocks lost less value than average in those events, while growth stocks lost
more than average. For the 2008 event, value and growth coefficients are not significant,
implying that in this event stocks across the growth-value spectrum were equally affected.
The regression coefficients for the industry dummy variables indicate that there is
significant variation in the industry effect between the five decline events. With the exception of
the 1987 event, it appears that the consumer goods industry segment (cnsmr) generally
performed better during major stock market declines with positive and significant regression
coefficients. Firms in the 'hitec' industry group performed better than the average in the 2008
event and worse than the average in the 1997, 1998 and 2000 events. The healthcare (hlth)
industry regression coefficient is significant only for the 1987 and 2000 events, with firms in this
industry underperforming the average in the former and outperforming the average in the latter
event. The regression coefficient for the manufacturing (manuf) industry segment is positive and
significant for 1987, 1997, 1998, and 2000, and negative for 2008, indicating that manufacturing
firms performed better than the average in the first four events and worse than the average in the
2008 event.

Combined Data for All Five Major Stock Market Declines

Although the five major stock market decline events have a number of distinct
characteristics, running regressions with the combined sample may provide some useful insights
about the overall mean effects of the variables across all events. We present our regression results
with the entire data set for all five major stock market decline events in Exhibit 7. The F statistic
indicates that the regression is statistically significant at the 1-percent level.

[Exhibit 7 is to be inserted about here]

The regression coefficients of value and growth classifications imply that growth stocks
are affected more than average, and value stocks are affected less than average (outperform),
during major market declines. Stocks with higher beta are also more significantly affected, while
larger companies tend to be more stable. Consumer, healthcare, and manufacturing industries on
average show smaller price declines, while the high tech industry is more volatile.

Additional Specifications

To analyze the robustness of the observed results to the specifics of event selection, we
have combed through the daily S&P 500 stock index data from 1980 to 2015 using various
definitions of "market decline". We have created six different event filters, whose descriptions as
well as number of events and summary statistics of index returns are listed in Exhibit 8. In
addition to looking at four market declines, we also created two additional event filters to
examine periods of strong market gains, to observe how value and growth stocks behave at the
opposite end of the return spectrum (see filters 4 and 6).

[Exhibit 8 is to be inserted about here]

For each of the events produced by each filter, we have collected the same data as was
previously described for each of the core market decline events analyzed earlier. For instance, for
the first filter, for each of the 65 events where the market index declined by more than 5% over 5
trading days, we collected and calculated data for all of the publicly traded companies from
CRSP and COMPUSTAT, resulting in several thousand observations for each one.
We then ran regressions for the aggregated data for each filter, similar to that in Exhibit 7
which aggregates all 5 specific market decline events, to observe the patterns of behavior of
growth and value stocks for these events overall. The results of these multivariate regressions are
shown in Exhibit 9, with the columns numbered with the number of the filter as denoted in
Exhibit 8.

[Exhibit 9 is to be inserted about here]

The general pattern of the coefficients on the value indicator is that it is positive and
significant across market decline filter definitions, suggesting that value stocks outperform
growth stocks during periods of significant market declines. The one exception is the result for
Filter 3, single day market declines of more than 2%, which has value stocks doing worse and
growth stocks doing better than average. Overall, these results suggest that the lower sensitivity
of the value portfolio to significant market declines is generally robust to the selection criteria
used to define a short term market decline and confirms our earlier results.
Looking at significant market increases (filters 4 and 6), the results are less consistent.
Growth indicator is insignificant for Filter 4, single day increases of more than 2%, and value
indicator is insignificant for Filter 6, consecutive increases over 5 trading days. However, the
coefficients that are significant still point to value outperformance and growth
underperformance.
Within each event selection filter there are tens or hundreds of individual events, as
shown earlier in Exhibit 8. It may be interesting to dig into these results further, and see for what
percentage of the events within each of the filter groups are the value and growth indicators
positive, negative, or insignificant predictors of performance. We conducted this analysis by
running regressions on each individual event within each filter group (recall that each event has
several thousand cross-sectional observations for individual securities within it, which make for
a large enough sample to run individual event regressions), and present the summary statistics in
Exhibit 10.

[Exhibit 10 is to be inserted about here]

The results are consistent with the combined regressions. The value indicator is positive
and significant more often than negative and significant for all filters where it is overall positive
and significant. For the individual events, it may be possible for the value portfolio to
underperform the market average or the growth portfolio. However, on average across events,
value is more likely to perform better than growth.

Performance Attribution Analysis

Additionally, it may be illuminating to decompose our growth/value indicators into their

component variables, those being market to book, dividend yield, and earnings yield, to
determine the relative contribution of these metrics to the performance differential along the
value/growth continuum. To this effect, we expand the regression specification to explicitly
include these three variables, focusing on the events that were analyzed in Exhibit 6. The results
are shown in Exhibit 11.

[Exhibit 11 is to be inserted about here]

The inclusion of the component variables unsurprisingly makes the value/growth

indicators insignificant in several of the specifications. Among the mkbk, dy, and ey components,
mkbk and dy are significant in the first four events, and ey is significant in the last three events,
with signs consistent with the overall value effect observed earlier. These results suggest that the
performance effects observed for the value/growth indicators are not driven exclusively by only
one or two of the components, but instead come from a combination of the component variables.

CONCLUSION

In this paper, we study the determinants of stock returns in five major stock market
declines during the 1987-2008 period to investigate the price behavior of 'value' and 'growth'
stocks. Using daily closing prices we calculate cumulative returns for the decline period events
listed in Exhibit 1, and regress decline period returns on a number of firm characteristics, along
with the value and growth classifications.
We find a consistent pattern of lower than average sensitivity for value stocks and higher
than average sensitivity for growth stocks to most major stock market declines. We find that the
2008 decline event was distinct from the other four major market declines, wherein equities
across the value-growth continuum were evenly affected. Further analysis using several hundred
different significant market decline events between 1980 and 2015 confirms the observation that
value stocks tend to outperform both the market average and growth stocks during market
declines. For the investment practitioner, our results suggest that following a value strategy does
not lead one to assume greater sensitivity to unfavorable market conditions.

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EXHIBIT 1
Major Stock Market Declines Included in the Study

Event Decline Period Decline Return (%)

October 1987 Oct 14 – Oct 19 -28.51
October 1997 Oct 22 – Oct 27 -9.80
August 1998 Aug 26 – Aug 31 -12.41
April 2000 Apr 10 – Apr 14 -10.54
October 2008 Oct 1 – Oct 10 -22.90

This exhibit details the five major stock market decline events that are the subject of this study. Included are the dates as well as the cumulative
S&P 500 index returns during each period.

EXHIBIT 2
Data Items Used in the Study

Variable Source Description

Indtret CRSP Combined index return, including NYSE, NASDAQ, ARCA
Adjtprc CRSP Adjusted trading price, present only if trades occurred during the day
Tprc CRSP Trading price, present only if trades occurred during the day
SIC CRSP SIC code
TCap CRSP Market cap, in thousands (rescaled to millions for convenience)
NIQ COMPUSTAT Net Income, in millions
DVPSXQ COMPUSTAT Dividends per common share, ex-date
LTQ COMPUSTAT Total liabilities, in millions
ATQ COMPUSTAT Total assets, in millions

This exhibit lists all the data items used in this study, along with their descriptions and source databases.

EXHIBIT 3
Constructed Variables Used in the Study

Variable Description
decline.return Cumulative total return for each market decline event.
beta Stock beta calculated over the past 90 calendar days of daily stock data.
mkbk Market to book equity ratio. TCap / (ATQ – LTQ)
ey Earnings yield (NIQ * 4 / TCap)
growth Dummy variable, 1 if firm is a growth firm (pays no dividends, below median
earnings yield and above median market to book ratio)
value Dummy variable, 1 if firm is a value firm (pays dividends, above median earnings
yield and below median market to book ratio)
cnsmr Dummy variable set to 1 for the 'consumer' industry portfolio.
manuf Dummy variable set to 1 for the 'manufacturing' industry portfolio.
hitec Dummy variable set to 1 for the 'high technology' industry portfolio.
hlth Dummy variable set to 1 for the 'healthcare' industry portfolio.

This exhibit lists all the constructed variables used in this study, along with their detailed descriptions.

EXHIBIT 4
Summary Statistics

Variable Min 1st Qu. Median Mean 3rd Qu. Max StDev
Panel 1: October 1987 decline (N = 2745)
ATQ 2.038 34.003 101.205 891.1813 372.025 70011 3393.2017

decline.return -0.6316 -0.2581 -0.1869 -0.19 -0.1197 0.5532 0.1016

beta -2.3879 0.183 0.5365 0.5702 0.933 4.5528 0.6121

growth 0 0 0 0.1887 0 1 0.3913

value 0 0 0 0.1461 0 1 0.3533

TCap 1.7835 32.8933 92.3766 813.1832 361.699 90131.0462 3351.4169

mkbk 0.1842 1.2827 1.9359 2.5855 3.0193 30.7585 2.4289

ey -1.5483 0.013 0.05 0.0249 0.0826 0.916 0.1665

Panel 2: October 1997 decline (N = 4649)

ATQ 1.441 37.246 115.401 1052.9635 490.685 97123 4048.3533

decline.return -0.6462 -0.1264 -0.0759 -0.0834 -0.0347 0.4884 0.0762

beta -5.0234 0.0788 0.4527 0.4332 0.811 4.8331 0.6654

growth 0 0 0 0.2629 1 1 0.4402

value 0 0 0 0.106 0 1 0.3079

TCap 1.8809 56.8417 173.1356 1539.0502 660.2975 167169.5 7535.7586

mkbk 0.1407 1.7102 2.7519 3.872 4.6349 31.8002 3.6417

ey -1.541 -0.0232 0.0333 -0.007 0.0615 0.9457 0.1746

Panel 3: August 1998 decline (N = 4390)

ATQ 1.605 44.9147 140.789 1167.7359 575.6955 93216 4220.956

decline.return -0.6826 -0.2 -0.1304 -0.1399 -0.0705 0.5476 0.101

beta -4.3901 0.3721 0.7485 0.7839 1.1636 3.7778 0.6494

growth 0 0 0 0.2399 0 1 0.427

value 0 0 0 0.0866 0 1 0.2812

TCap 1.9438 47.7473 151.3649 1702.4064 585.3054 280297.9988 9707.0032

mkbk 0.1505 1.252 1.977 3.0309 3.4731 31.7557 3.3133

ey -1.5372 -0.0337 0.0383 -0.0151 0.0766 0.9422 0.2177

Panel 4: April 2000 decline (N = 4318)

ATQ 2.275 53.4477 178.7945 1605.2811 703.3302 244192.53 7200.3358

decline.return -0.7903 -0.2656 -0.1196 -0.1551 -0.0291 0.5 0.1609

beta -2.7089 0.1754 0.538 0.6408 1.0344 4.9892 0.734

growth 0 0 0 0.3034 1 1 0.4598

value 0 0 0 0.1176 0 1 0.3222

TCap 2.394 59.9403 233.2171 2931.3049 935.613 490266.7536 18292.5856

mkbk 0.1392 1.1703 2.3181 4.3385 5.2668 31.7397 5.1849

ey -1.5482 -0.0435 0.023 -0.0021 0.075 0.9717 0.1931

Panel 5: October 2008 decline (N = 3247)

ATQ 1.68 137.922 507.719 3862.8797 2123.1965 284508 13681.3614

decline.return -0.808 -0.332 -0.2426 -0.2522 -0.1681 0.399 0.1326

beta -1.3277 0.5038 0.8225 0.8254 1.127 3.0757 0.5008

growth 0 0 0 0.2125 0 1 0.4091

value 0 0 0 0.0921 0 1 0.2892

TCap 2.5673 131.4895 475.3304 3600.9767 1801.1412 403366.292 15054.31

mkbk 0.1372 1.069 1.7241 2.6319 2.9674 30.2827 3.1153

ey -1.548 -0.0139 0.0482 0.0044 0.0865 0.8952 0.226

Panel 6: All data (N = 19349)

ATQ 1.441 48.302 165.255 1650.8478 720.761 284508 7322.9002

decline.return -0.808 -0.232 -0.1354 -0.1557 -0.0609 0.5532 0.1302

beta -5.0234 0.2384 0.6135 0.6443 1.0174 4.9892 0.6625

growth 0 0 0 0.2477 0 1 0.4317

value 0 0 0 0.1076 0 1 0.3098

TCap 1.7835 55.6297 195.1488 2129.8539 796.2708 490266.7536 12254.4281

mkbk 0.1372 1.2831 2.1543 3.3947 3.8733 31.8002 3.8228

ey -1.5483 -0.0243 0.0378 -0.0013 0.0749 0.9717 0.1976

This exhibit shows the summary statistics of the data samples for the five individual stock market decline events in Panels 1-5, in chronological
order, and for all data aggregated together in Panel 6. Included are the minimum, first quartile, median, mean, third quartile, maximum, and
standard deviation statistics. All variables are as defined in Exhibits 2 and 3.

EXHIBIT 5
Univariate Analysis by Median of Stock Market Decline Returns

Variable Mean (low) Mean (high) T-stat P-value

Panel 1: October 1987 Decline (N = 2745)
value 0.1122 0.1799 -5.0396*** 0
growth 0.231 0.1464 5.6988*** 0
Panel 2: October 1997 Decline (N = 4649)
value 0.0504 0.1617 -12.5296*** 0
growth 0.3388 0.187 11.9291*** 0
Panel 3: August 1998 Decline (N = 4390)
value 0.0402 0.1325 -11.0423*** 0
growth 0.3274 0.153 13.8070*** 0
Panel 4: April 2000 Decline (N = 4318)
value 0.012 0.2233 -22.7924*** 0
growth 0.5266 0.0801 36.4963*** 0
Panel 5: October 2008 Decline (N = 3247)
value 0.1072 0.077 2.9826*** 0.0029
growth 0.2033 0.2217 -1.2778 0.2014
Panel 6: All data (N = 19349)
value 0.0669 0.1482 -18.4182*** 0
growth 0.3243 0.1712 25.0636*** 0

This exhibit shows the results of the univariate analysis. The data is partitioned along the median of stock market decline returns, and two-tailed
t-tests for differences in means are conducted for each variable. Included are the means for the 'high' and 'low' decline return subsample, the t
statistic, and the p-value. All variables are as defined earlier in Exhibits 2 and 3. ***, **, * indicate significance at the 1, 5, and 10 percent
levels, respectively.

EXHIBIT 6
Multivariate Regression Analysis Results for the Five Major Stock Market Decline Events

Dependent Variable: decline.return

1987 1997 1998 2000 2008
Intercept -0.1546 *** -0.0720 *** -0.1099 *** -0.0856 *** -0.2062 ***
( -32.5873 ) ( -25.4469 ) ( -27.4342 ) ( -18.0506 ) ( -32.5086 )
value 0.0166 *** 0.0243 *** 0.0316 *** 0.0627 *** 0.0041
( 3.1733 ) ( 6.6933 ) ( 6.0076 ) ( 10.5263 ) ( 0.5208 )
growth -0.0270 *** -0.0189 *** -0.0352 *** -0.1258 *** 0.0006
( -5.5941 ) ( -7.3373 ) ( -9.9293 ) ( -27.7228 ) ( 0.1058 )
beta -0.0552 *** -0.0164 *** -0.0326 *** -0.0474 *** -0.0614 ***
( -18.4864 ) ( -10.0267 ) ( -14.5158 ) ( -17.5082 ) ( -13.5927 )
TCap -0.0032 *** -0.0002 0.0004 ** 0.0005 *** 0.0003 **
( -5.7874 ) ( -1.0928 ) ( 2.5259 ) ( 4.6553 ) ( 2.1424 )
cnsmr -0.0021 0.0104 *** 0.0108 ** 0.0158 *** 0.0211 ***
( -0.3677 ) ( 2.9727 ) ( 2.3093 ) ( 2.6585 ) ( 2.9761 )
hitec 0.0007 -0.0210 *** -0.0168 *** -0.0663 *** 0.0230 ***
( 0.1143 ) ( -6.1630 ) ( -3.6916 ) ( -11.4827 ) ( 3.4317 )
hlth -0.0173 ** -0.0003 -0.0037 -0.0011 0.0112
( -2.1796 ) ( -0.0742 ) ( -0.6631 ) ( -0.1473 ) ( 1.3503 )
manuf 0.0098 * 0.0076 ** 0.0149 *** 0.0381 *** -0.0333 ***
( 1.7849 ) ( 2.1621 ) ( 3.1565 ) ( 6.2132 ) ( -4.9209 )
N 2745 4649 4390 4318 3247

Adj. R-squared 0.1565 0.0902 0.1282 0.4687 0.0895

F statistic 64.6362 *** 58.5987 *** 81.6501 *** 477.1070 *** 40.8625 ***
( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 )

This exhibit shows the results of multiple regression analysis on the data for the individual events. The dependent variable is the decline period
return, and the independent variables are as listed in the exhibit in the leftmost column. The regression specification is as follows:

decline.return = a0 +a1 value + a2 growth + a3 beta + a4 TCap + a5 cnsmr + a6 hitec + a7 hlth + a8 manuf + ɛ

Each column shows the regression results for one of the events, left to right in chronological order, as labeled. Shown are the coefficients with
significance indicators, and t-statistics below in parentheses. All variables are as defined earlier in Exhibits 2 and 3, but with TCap rescaled to
billions. The last three rows list the number of observations, the adjusted R-squared, and the F statistic (with p-value in parentheses), for each of
the regressions.

***, **, * indicate significance at the 1, 5, and 10 percent levels, respectively.

EXHIBIT 7
Multivariate Regression Analysis Results with All Data

Dep.var.: decline.return
Intercept -0.1138 ***
 ( -49.9146 )
value 0.0335 ***
( 11.6066 )
growth -0.0429 ***
( -20.1450 )
beta -0.0601 ***
( -45.6173 )
TCap 0.0001 **
( 2.0864 )
cnsmr 0.0185 ***
( 6.6545 )
hitec -0.0147 ***
( -5.4056 )
hlth 0.0081 **
( 2.3893 )
manuf 0.0110 ***
( 3.9775 )
N 19349

Adj. R-squared 0.1638

F statistic 474.7531 ***

( 0.0000 )

This exhibit shows the results of multiple regression analysis on the entire data sample. The dependent variable is decline period return, and the
independent variables are as listed in the exhibit in the leftmost column. The regression specification is as follows:

decline.return = a0 +a1beta + a2TCap + a3mkbk + a4dr + a5cr + a6cnsmr + a7hitec + a8hlth + a9manuf + ɛ

Shown are the coefficients with significance indicators, and t-statistics below in parentheses. All variables are as defined earlier in Exhibits 2 and
3, but with TCap rescaled to billions. The last three rows list the number of observations, the adjusted R-squared, and the F statistic (with p-value
in parentheses).

***, **, * indicate significance at the 1, 5, and 10 percent levels, respectively.

EXHIBIT 8
Additional Event Filters

Number Description N.obs. Min Mean Max St.Dev.

1 Cumulative declines over 5 trading days of more than 5% 65 -0.243 -0.0794 -0.0504 0.0367
2 Cumulative declines over 10 trading days of more than 5% 70 -0.2763 -0.0874 -0.0506 0.045
3 Single day declines of more than 2% 251 -0.1713 -0.031 -0.02 0.0155
4 Single day increases of more than 2% 219 0.02 0.0306 0.1149 0.0127
5 Consecutive declines over 5 trading days 42 -0.1359 -0.0424 -0.0104 0.0269
6 Consecutive increases over 5 trading days 83 0.0116 0.0331 0.198 0.0218

This exhibit lists the additional event filters used in this study, including their descriptions, number of observations, minimum, mean, maximum,
and standard deviation of index returns for the events within each filter group.

EXHIBIT 9
Multivariate Regression Analysis for Additional Event Filters

Dependent Variable: event.return

Filter number: 1 2 3 4 5 6
Intercept -0.0360 *** -0.0501 *** -0.0050 *** -0.0056 *** 0.0027 0.0183 ***
( -13.8086 ) ( -19.1786 ) ( -9.2810 ) ( -8.0395 ) ( 1.0680 ) ( 8.0715 )
value 0.0050 *** 0.0111 *** -0.0020 *** 0.0012 *** 0.0053 *** -0.0001
( 6.0009 ) ( 10.7924 ) ( -10.7440 ) ( 5.2364 ) ( 5.5305 ) ( -0.1867 )
growth -0.0137 *** -0.0214 *** 0.0033 *** 0.0001 -0.0167 *** -0.0009 **
( -23.1370 ) ( -30.8703 ) ( 23.5367 ) ( 0.7977 ) ( -25.9932 ) ( -1.9766 )
beta -0.0382 *** -0.0358 *** -0.0269 *** 0.0321 *** -0.0218 *** 0.0121 ***
( -119.7339 ) ( -97.1687 ) ( -352.3096 ) ( 351.3948 ) ( -73.2955 ) ( 56.3260 )
TCap 0.0002 *** 0.0002 *** 0.0000 *** 0.0000 -0.0001 *** 0.0000
( 10.7633 ) ( 11.4156 ) ( 10.4793 ) ( 0.9234 ) ( -3.5855 ) ( -0.9996 )
cnsmr -0.0111 *** -0.0091 *** 0.0002 0.0046 *** -0.0175 *** 0.0032
( -4.2538 ) ( -3.4865 ) ( 0.3489 ) ( 6.6770 ) ( -6.8574 ) ( 1.3930 )
hitec -0.0209 *** -0.0203 *** 0.0006 0.0043 *** -0.0290 *** 0.0107 ***
( -7.9917 ) ( -7.7740 ) ( 1.1324 ) ( 6.1812 ) ( -11.3784 ) ( 4.7035 )
hlth -0.0062 ** -0.0021 -0.0001 0.0035 *** -0.0155 *** 0.0041 *
( -2.3290 ) ( -0.7826 ) ( -0.1846 ) ( 4.8681 ) ( -5.9425 ) ( 1.7727 )
manuf -0.0143 *** -0.0104 *** -0.0004 0.0046 *** -0.0156 *** 0.0030
( -5.4317 ) ( -3.9120 ) ( -0.7473 ) ( 6.5420 ) ( -6.0641 ) ( 1.3293 )
N 189802 192965 764142 665857 121727 229166

Adj. R-squared 0.0867 0.0651 0.1422 0.1619 0.0653 0.0163

F statistic 2252.1776 *** 1679.7957 *** 15831.5418 *** 16078.6122 *** 1063.7489 *** 476.0016 ***
( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 )

This exhibit shows the results of multiple regression analysis on the data for the various event filters described in Exhibit 8.. The dependent
variable is the cumulative stock return for each stock for each event in the filter group, and the independent variables are as listed in the exhibit
in the leftmost column. The regression specification is as follows:

event.return = a0 +a1 value + a2 growth + a3 beta + a4 TCap + a5 cnsmr + a6 hitec + a7 hlth + a8 manuf + ɛ

Each column shows the regression results for one of the filter groups, numbered as per Exhibit 8. Shown are the coefficients with significance
indicators, and t-statistics below in parentheses. All variables are as defined earlier in Exhibits 2 and 3, but with TCap rescaled to billions. The
last three rows list the number of observations, the adjusted R-squared, and the F statistic (with p-value in parentheses), for each of the
regressions.

***, **, * indicate significance at the 1, 5, and 10 percent levels, respectively.

EXHIBIT 10
Individual Event Regression Statistics

Filter No. Value pos. sig. Value neg. sig. Growth pos. sig. Growth neg. sig.
 1 27 0 4 35
2 30 1 4 46
3 26 21 84 32
4 20 14 71 28
5 11 0 4 21
6 6 9 16 24

This exhibit shows the number of events for which value and growth were positive and significant, or negative and significant. The filters are
numbered in the first column, as per Exhibit 8. Value and growth significance counts are shown in the other columns.

EXHIBIT 11
Performance Attribution Analysis

Dependent Variable: decline.return

 1987 1997 1998 2000 2008
Intercept -0.1523 *** -0.0688 *** -0.1135 *** -0.0815 *** -0.2094 ***
( -29.3725 ) ( -23.1259 ) ( -27.4462 ) ( -17.1851 ) ( -31.8472 )
value 0.0054 0.0130 *** 0.0072 0.0297 *** -0.0027
( 0.9045 ) ( 3.1211 ) ( 1.2370 ) ( 4.1230 ) ( -0.3082 )
growth -0.0183 *** -0.0113 *** -0.0262 *** -0.1000 *** 0.0020
( -3.4231 ) ( -3.7708 ) ( -6.6281 ) ( -19.4822 ) ( 0.3190 )
beta -0.0537 *** -0.0154 *** -0.0307 *** -0.0444 *** -0.0637 ***
( -17.9614 ) ( -9.3664 ) ( -13.6992 ) ( -16.4101 ) ( -14.0949 )
TCap -0.0033 *** -0.0001 0.0003 ** 0.0006 *** 0.0002
( -5.9530 ) ( -0.8007 ) ( 2.1893 ) ( 5.7235 ) ( 1.5647 )
cnsmr -0.0016 0.0097 *** 0.0110 ** 0.0136 ** 0.0224 ***
( -0.2816 ) ( 2.7787 ) ( 2.3642 ) ( 2.3338 ) ( 3.1762 )
hitec 0.0015 -0.0204 *** -0.0136 *** -0.0615 *** 0.0254 ***
( 0.2550 ) ( -5.9884 ) ( -3.0106 ) ( -10.7751 ) ( 3.7980 )
hlth -0.0158 ** 0.0002 0.0002 0.0032 0.0143 *
( -1.9907 ) ( 0.0573 ) ( 0.0450 ) ( 0.4533 ) ( 1.7214 )
manuf 0.0056 0.0054 0.0084 * 0.0319 *** -0.0327 ***
( 1.0092 ) ( 1.5146 ) ( 1.7697 ) ( 5.2394 ) ( -4.8620 )
mkbk -0.0026 *** -0.0016 *** -0.0013 *** -0.0035 *** 0.0014 *
( -3.1191 ) ( -4.7124 ) ( -2.5774 ) ( -7.9343 ) ( 1.7772 )
dy 1.5581 *** 1.6227 *** 3.9537 *** 2.8746 *** 0.1428
( 4.0559 ) ( 4.9113 ) ( 9.1906 ) ( 5.6209 ) ( 0.3577 )
ey -0.0177 -0.0015 0.0171 ** 0.0736 *** 0.0590 ***
( -1.5996 ) ( -0.2328 ) ( 2.5212 ) ( 7.6568 ) ( 5.7480 )
N 2745 4649 4390 4318 3247

Adj. R-squared 0.1647 0.0986 0.1458 0.4854 0.0991

F statistic 50.1820 *** 47.2319 *** 69.1099 *** 371.2090 *** 33.4699 ***
( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 ) ( 0.0000 )

This exhibit shows the results of multiple regression analysis on the data for the selected individual events. The dependent variable is the decline
return, and the independent variables are as listed in the exhibit in the leftmost column. The regression specification is as follows:

decline.return = a0 +a1 value + a2 growth + a3 beta + a4 TCap + a5 cnsmr + a6 hitec + a7 hlth + a8 manuf +
+ a9 mkbk + a10 dy + a11 ey + ɛ

Each column shows the regression results for one of the events, left to right in chronological order, as labeled. Shown are the coefficients with
significance indicators, and t-statistics below in parentheses. All variables are as defined earlier in Exhibits 2 and 3, but with TCap rescaled to
billions. The last three rows list the number of observations, the adjusted R-squared, and the F statistic (with p-value in parentheses), for each of
the regressions.

***, **, * indicate significance at the 1, 5, and 10 percent levels, respectively.

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