Advanced Search
MyIDEAS: Login to save this paper or follow this series

Observed and 'Fundamental' Price Earning Ratios: A Comparative Analysis of High-tech Stock Evaluation in the US and in Europe

Contents:

Author Info

  • Leonardo Becchetti

    ()
    (University of Rome II - Faculty of Economics)

  • Michele Bagella

    ()
    (University of Rome II - Faculty of Economics)

  • Fabrizio Adriani

    ()
    (University of Rome II - Centre for International Studies on Economic Growth (CEIS))

Abstract

By assuming that a large share of investors (which we call fundamentalists) follows a fundamental approach to stock picking, we build a discounted cash flow (DCF) model and test on a sample of high-tech stocks whether the strong and the weak version of the model are supported by data from the US and European stock markets. Empirical results show that "fundamental" earning price ratios explain a significant share of cross sectional variation of the observed E/P ratios, with other additional variables being only partially and weakly relevant. Within this general framework, valid both for Europe and the US, empirical results outline significant differences between the two markets. The most relevant of them is that the relationship between observed and fundamental E/P ratios is much weaker in Europe.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: ftp://www.ceistorvergata.it/repec/rpaper/No-34-Bagella,Becchetti,Adriani.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 34.

as in new window
Length: 31
Date of creation: 26 Sep 2003
Date of revision:
Handle: RePEc:rtv:ceisrp:34

Contact details of provider:
Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Phone: +390672595601
Fax: +39062020687
Email:
Web page: http://www.ceistorvergata.it
More information through EDIRC

Order Information:
Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Email:
Web: http://www.ceistorvergata.it

Related research

Keywords: financial market microstructure; asset pricing;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 703-38, August.
  2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 79-113, July.
  3. Owen Lamont, 1998. "Earnings and Expected Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 53(5), pages 1563-1587, October.
  4. John Y. Campbell, 2000. "Asset Pricing at the Millennium," Journal of Finance, American Finance Association, American Finance Association, vol. 55(4), pages 1515-1567, 08.
  5. Eugene F. Fama & Kenneth R. French, . "Forecasting Profitability and Earnings," CRSP working papers 456, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  6. Pilbeam, Keith, 1995. "The Profitability of Trading in the Foreign Exchange Market: Chartists, Fundamentalists, and Simpletons," Oxford Economic Papers, Oxford University Press, vol. 47(3), pages 437-52, July.
  7. Goodhart, Charles, 1988. "The Foreign Exchange Market: A Random Walk with a Dragging Anchor," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 55(220), pages 437-60, November.
  8. H. Kent Baker & Gary E. Powell & Daniel G. Weaver, 1999. "Does NYSE Listing Affect Firm Visibility?," Financial Management, Financial Management Association, Financial Management Association, vol. 28(2), Summer.
  9. Eugene F. Fama & Kenneth R. French, . "Value versus Growth: The International Evidence," CRSP working papers 341, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  10. Jaffe, Jeffrey & Keim, Donald B & Westerfield, Randolph, 1989. " Earnings Yields, Market Values, and Stock Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 44(1), pages 135-48, March.
  11. John G. Cragg & Burton G. Malkiel, 1982. "Expectations and the Structure of Share Prices," NBER Books, National Bureau of Economic Research, Inc, number crag82-1, January.
  12. Ball, Ray, 1978. "Anomalies in relationships between securities' yields and yield-surrogates," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(2-3), pages 103-126.
  13. Brennan, Michael J & Jegadeesh, Narasimhan & Swaminathan, Bhaskaran, 1993. "Investment Analysis and the Adjustment of Stock Prices to Common Information," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 799-824.
  14. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  15. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, American Finance Association, vol. 32(3), pages 663-82, June.
  16. Chung, Kee H. & Jo, Hoje, 1996. "The Impact of Security Analysts' Monitoring and Marketing Functions on the Market Value of Firms," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(04), pages 493-512, December.
  17. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  18. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  19. Rao, Cherukuri U & Litzenberger, Robert H, 1971. "Leverage and the Cost of Capital in a Less Developed Capital Market: Comment," Journal of Finance, American Finance Association, American Finance Association, vol. 26(3), pages 777-82, June.
  20. Charles M. C. Lee & James Myers & Bhaskaran Swaminathan, 1999. "What is the Intrinsic Value of the Dow?," Journal of Finance, American Finance Association, American Finance Association, vol. 54(5), pages 1693-1741, October.
  21. Frankel, Jeffrey A & Froot, Kenneth A, 1990. "Chartists, Fundamentalists, and Trading in the Foreign Exchange Market," American Economic Review, American Economic Association, vol. 80(2), pages 181-85, May.
  22. Bakera, H. Kent & Powell, Gary E. & Weaver, Daniel G., 1999. "The visibility effects of Amex listing," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 39(3), pages 341-361.
  23. Franke, Reiner & Sethi, Rajiv, 1998. "Cautious trend-seeking and complex asset price dynamics," Research in Economics, Elsevier, Elsevier, vol. 52(1), pages 61-79, March.
  24. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
  25. Allen, Helen & Taylor, Mark P, 1990. "Charts, Noise and Fundamentals in the London Foreign Exchange Market," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 100(400), pages 49-59, Supplemen.
  26. Sethi, Rajiv, 1996. "Endogenous regime switching in speculative markets," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 7(1), pages 99-118, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:rtv:ceisrp:34. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Barbara Piazzi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.