Changes in Price-Earnings Ratios and Excess Returns on the Toronto Stock Exchange

Bartholdy, Jan

doi:10.2139/ssrn.2255

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Changes in Price-Earnings Ratios and Excess Returns on the Toronto Stock Exchange

20 Pages Posted: 1 May 1997

See all articles by Jan Bartholdy

Jan Bartholdy

University of Aarhus - Aarhus School of Business - Department of Business Studies

Date Written: March 20, 1997

Abstract

Can changes in Earnings-Price [EP] ratios predict future stock returns? Two recent theories of how investors react to new information in the form of either over or slow reaction suggests that this may indeed be the case. In this paper data from the Toronto Stock Exchange is used to show that investor overreaction to new information means that changes in EP ratios can be used to predict future returns on stocks. Finally, it is shown that this effect is independent of the more traditional PE, size and book to market effects present in financial markets.

JEL Classification: G12, G14

Suggested Citation: Suggested Citation

Bartholdy, Jan, Changes in Price-Earnings Ratios and Excess Returns on the Toronto Stock Exchange (March 20, 1997). Available at SSRN: https://ssrn.com/abstract=2255 or http://dx.doi.org/10.2139/ssrn.2255