P/E-talseffekten : Myt eller verklighet
Background: Is there an investment strategy that yields a guaranteed abnormal return and that could imply that the demand for the services provided by professional capital managers would disappear?Purpose: The purpose with this thesis is to examine whether it is possible to generate an abnormal return at the Stockholm Stock Exchange by investing in a portfolio that only contains stocks with low P/E ratios. The question is consequently if there exists a so called P/E effect.Implementation: We tested the P/E effect by creating two portfolios for each of our 28 periods from the beginning of 1991 until the end of 2004. The first portfolio included stocks with the fifteen lowest P/E ratios on the Stockholm Stock Exchange and the other portfolio included stocks with high P/E ratios. The risk adjusted return of the low P/E ratio portfolio was then compared to that of the high P/E ratio portfolio. A comparison was also made with the risk adjusted return from AFGX and SIXRX.Conclusion: We can, after a thorough analysis of our results, with 95 per cent probability say that a P/E effect didn’t existed on the Stockholm Stock Exchange if we look at our entire research period from the beginning of 1991 until the end of 2004. We can however say that it was possible to generate an abnormal return by investing in stocks with low P/E ratios, if we look solely at the periods after the IT bubble, fall 2000 until fall 2003.
Source Type:Master's Thesis
Keywords:p e ratio efficient markets capm abnormal return anomalies finance
Date of Publication:02/15/2006