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- Publisher
- Wiley
- Copyright
- Blackwell Publishers Ltd 1997
- ISSN
- 0954-1314
- eISSN
- 1467-646X
- DOI
- 10.1111/1467-646X.00025
- Publisher site
- See Article on Publisher Site
Abstract
Using a sample of Hong Kong firms, we have examined the relative and incremental usefulness of book‐to‐price ratio (B/P), and earnings‐to‐price ratio (E/P) for providing profitable trading strategies or for predicting stock returns. Our results show that trading strategies based on B/P or E/P yield significant excess returns for various holding periods up to two years, and that B/P and E/P are not only individually but also incrementally useful for predicting stock returns. Further, results of various tests indicate that trading profits observed from the B/P strategy are likely to be a result of B/P proxying for risk differentials, while those from the E/P strategy are related to gains from exploitation of market inefficiency or mispricing. The two ratios appear to capture different aspects of firm value in Hong Kong.
Journal
Journal of International Financial Management & Accounting – Wiley
Published: Oct 1, 1997