IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Expected P/E, Residual P/E, and Stock Return Reversal: Time-Varying Fundamentals or Investor Overreaction?

  • Ying Huang

    (School of Business, Manhattan College, U.S.A.)

  • Chia-Hui Tsai

    (First Taisec Capital Management, Taiwan)

  • Carl R. Chen

    (Department of Economics and Finance, University of Dayton, U.S.A.)

Registered author(s):

    We 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.

    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: http://www.ijbe.org/table%20of%20content/pdf/vol6-1/vol6-1-02.pdf
    Download Restriction: no

    File URL: http://www.ijbe.org/table%20of%20content/abstract/Vol.6/No.1/02.htm
    Download Restriction: no

    Article 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)
    Pages: 11-28

    as
    in new window

    Handle: RePEc:ijb:journl:v:6:y:2007:i:1:p:11-28
    Contact details of provider: Postal: 100 Wenhwa Road, Seatwen, Taichung
    Web page: http://www.ijbe.org/

    More information through EDIRC

    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. 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, vol. 32(3), pages 663-82, June.
    2. Poterba, James M. & Summers, Lawrence H., 1988. "Mean reversion in stock prices : Evidence and Implications," Journal of Financial Economics, Elsevier, vol. 22(1), pages 27-59, October.
    3. Cook, Thomas J. & Rozeff, Michael S., 1984. "Size and Earnings/Price Ratio Anomalies: One Effect or Two?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(04), pages 449-466, December.
    4. Partha Gangopadhyay, 1996. "Macroeconomic Variables And Seasonal Mean Reversion In Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(3), pages 395-416, 09.
    5. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    6. Reinganum, Marc R., 1981. "Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values," Journal of Financial Economics, Elsevier, vol. 9(1), pages 19-46, March.
    7. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March.
    Full references (including those not matched with items on IDEAS)

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

    When requesting a correction, please mention this item's handle: RePEc:ijb:journl:v:6:y:2007:i:1:p:11-28. 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: (Yi-Ju Su)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.