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Premium to book value may be a contrary indicator

Premium to book value may be a contrary indicator Thomas Plaistowe* and Rory F Knightt 1. Introduction rate. To test the effect of a particular piece of information on share returns, this common effect must be removed In an efficient market, prices reflect all relevant informa­ and attention must be focused on the firm's specific tion. performance. This focus is achieved using the market So, in an efficient market, indicators, such as price model of share return behaviour. The market model is earnings ratios and book value/price ratios should not be a development of the Sharpe-Lintner two-parameter useful in identifying mispriced shares. In fact, no publicly pricing model. This model takes the form of the available information should be useful in earning equation: abnormal returns. R;t <X; + B;Rmt + £; This paper uses the usual Sharpe market model to where: evaluate the average abnormal performance of various portfolios of shares based on their book value/market R;t the expected return on share i over period t value ratios . Rmt the expected return on the market over period t Firms were classified as being "premium" or "discount" E;t the deviation of the actual return of share i firms and placed into separate portfolios. The stock from the expected http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Investment Analysts Journal Taylor & Francis

Premium to book value may be a contrary indicator

Investment Analysts Journal , Volume 15 (28): 5 – Nov 1, 1986

Premium to book value may be a contrary indicator

Investment Analysts Journal , Volume 15 (28): 5 – Nov 1, 1986

Abstract

Thomas Plaistowe* and Rory F Knightt 1. Introduction rate. To test the effect of a particular piece of information on share returns, this common effect must be removed In an efficient market, prices reflect all relevant informa­ and attention must be focused on the firm's specific tion. performance. This focus is achieved using the market So, in an efficient market, indicators, such as price model of share return behaviour. The market model is earnings ratios and book value/price ratios should not be a development of the Sharpe-Lintner two-parameter useful in identifying mispriced shares. In fact, no publicly pricing model. This model takes the form of the available information should be useful in earning equation: abnormal returns. R;t <X; + B;Rmt + £; This paper uses the usual Sharpe market model to where: evaluate the average abnormal performance of various portfolios of shares based on their book value/market R;t the expected return on share i over period t value ratios . Rmt the expected return on the market over period t Firms were classified as being "premium" or "discount" E;t the deviation of the actual return of share i firms and placed into separate portfolios. The stock from the expected

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References (13)

Publisher
Taylor & Francis
Copyright
© 1986 Taylor and Francis Group, LLC
ISSN
2077-0227
eISSN
1029-3523
DOI
10.1080/10293523.1986.11082252
Publisher site
See Article on Publisher Site

Abstract

Thomas Plaistowe* and Rory F Knightt 1. Introduction rate. To test the effect of a particular piece of information on share returns, this common effect must be removed In an efficient market, prices reflect all relevant informa­ and attention must be focused on the firm's specific tion. performance. This focus is achieved using the market So, in an efficient market, indicators, such as price model of share return behaviour. The market model is earnings ratios and book value/price ratios should not be a development of the Sharpe-Lintner two-parameter useful in identifying mispriced shares. In fact, no publicly pricing model. This model takes the form of the available information should be useful in earning equation: abnormal returns. R;t <X; + B;Rmt + £; This paper uses the usual Sharpe market model to where: evaluate the average abnormal performance of various portfolios of shares based on their book value/market R;t the expected return on share i over period t value ratios . Rmt the expected return on the market over period t Firms were classified as being "premium" or "discount" E;t the deviation of the actual return of share i firms and placed into separate portfolios. The stock from the expected

Journal

Investment Analysts JournalTaylor & Francis

Published: Nov 1, 1986

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