Financial Strength Characteristics of Firms: An Explanation of the P/E Anomaly?

UNCG Author/Contributor (non-UNCG co-authors, if there are any, appear on document)
Daniel T. Winkler, Professor (Creator)
Joseph E. Johnson, Professor Emeritus (Contributor)
Institution
The University of North Carolina at Greensboro (UNCG )
Web Site: http://library.uncg.edu/

Abstract: The P/E anomaly is the widely accepted proposition that even after adjusting for risk as mea-sured by beta, low P/E stocks have higher returns than high P/E stocks. The literature includes substantial evidence supporting the proposition. Recent research has examined the small-firm effect, the January effect, and methodological issues in an attempt to explain the P/E anomaly. This study examines the P/E anomaly from 1986-90 using a mean cross-sectional regression analysis. The findings indicate the P/E anomaly is present only on NYSE stocks and is largely explained by financial strength characteristics, consistent with Chan and Chen' s (1991) marginal firm hypothesis.

Additional Information

Publication
Southern Business Review, vol. 19, no. 2, Fall 1993, pp. 39-47
Language: English
Date: 1993
Keywords
P/E anomaly, Characteristics, Mean cross-sectional regression analysis