Abstract
price-earnings ratio;value premium;arbitrage trading rule;UK stock returns;contrarian investment Abstract: The price-earnings effect has been thoroughly documented and is the subject of numerous academic studies. However, in existing research it has almost exclusively been calculated on the basis of the previous year's earnings. We show that the power of the effect has until now been seriously underestimated due to taking too short-term a view of earnings. Looking at all UK companies since 1975, using the traditional P/E ratio we find the difference in average annual returns between the value and glamour deciles to be 6E ratio using earnings averaged over the previous eight years.
| Original language | English |
|---|---|
| Pages (from-to) | 1063-1086 |
| Number of pages | 24 |
| Journal | Journal of Business Finance and Accounting |
| Volume | 33 |
| Issue number | 7-8 |
| DOIs | |
| Publication status | Published - 15 Oct 2006 |
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