A MODIFIED PRICE-EARNINGS INVESTMENT STRATEGY ? AN ALTERNATIVE RISK-CONTROL APPROACH

Peer reviewed: 
No, item is not peer reviewed.
Date created: 
2010-09-02
Keywords: 
FRM
Abstract: 

Price-Earnings (PE) ratio is widely used as the key indicator for many value investment strategies. Existing studies use market beta as the risk-adjustment measure to modify PE strategies. In this study, we use financial and operating leverage ratios to control risks when forming low PE strategies. Our results show that, when compared to the market and traditional low PE firms, the less leveraged low PE firms yield higher returns and greatly reduce the portfolio risk. Further investigation indicates that the outperformance is mainly contributed by the bearish market returns, a finding that helps explain the contradiction to the expected risk-reward relationship.

Description: 

Research Project (M.B.A.) - Simon Fraser University

Language: 
English
Document type: 
Thesis
Senior supervisor: 
George Blazenko
Department: 
Business Administration
Thesis type: 
(Thesis) M.A.: Master of Financial Risk Management
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