The Investment Performance of Common Stocks in Relation to Their Price–Earnings Ratios: An Update of the Basu Study |
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| Authors: | R Stafford Johnson Lyle C Fiore Richard Zuber |
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| Institution: | Xavier University, Cincinnati, OH 45207.;Fifth Third Bank, Cincinnati, OH 45202.;University of North Carolina at Charlotte, Charlotte, NC 28223. |
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| Abstract: | In this paper, the relationship between the investment performances of equity securities and their price–earnings ratios is examined using an approach similar to the one employed by Basu in a 1977 paper. From the tests, we conclude that, from 1979 through 1984, there were some moderate excess rates of return earned by selecting stocks based on their price–earnings ratios but that these excess rates were not obtained from investing in low price–earnings stocks. |
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