Expected P/E, Residual P/E, and Stock Return Reversal: Time-Varying Fundamentals or Investor Overreaction?
AbstractWe decompose P/E ratios into a fundamental component and a residual component that cannot be explained by the firm or economic fundamentals. Purging the fundamental component from observed P/E ratios, we find that portfolios based on residual P/E ratios exhibit performance reversal only in overbid glamour stocks; hence over-optimism is more prevalent than over-pessimism.
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Bibliographic InfoArticle provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.
Volume (Year): 6 (2007)
Issue (Month): 1 (April)
P/E ratios; overreaction; market efficiency;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
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