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

Resource type
Thesis type
(Thesis) M.A.: Master of Financial Risk Management
Date created
2010-09-02
Authors/Contributors
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.
Document
Description
Research Project (M.B.A.) - Simon Fraser University

Keywords

Copyright statement
Copyright is held by the author.
Scholarly level
Supervisor or Senior Supervisor
Thesis advisor: Blazenko, George
Language
English
Attachment Size
FRM 2008, Lo, T. Wang, K..pdf 658.21 KB