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http://ssrn.com/abstract=1757025
 
 

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Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach


Joseph D. Piotroski


Stanford Graduate School of Business

Eric C. So


Massachusetts Institute of Technology (MIT) - Sloan School of Management

May 9, 2012

Review of Financial Studies (RFS), 25(9): 2841-2875

Abstract:     
It is well established that value stocks outperform glamour stocks, yet considerable debate exists about whether the return differential reflects compensation for risk or mispricing. Under mispricing explanations, prices of glamour (value) firms reflect systematically optimistic (pessimistic) expectations; thus, the value/glamour effect should be concentrated (absent) among firms with (without) ex ante identifiable expectation errors. Classifying firms based upon whether expectations implied by current pricing multiples are congruent with the strength of their fundamentals, we document that value/glamour returns and ex post revisions to market expectations are predictably concentrated (absent) among firms with ex ante biased (unbiased) market expectations.

Number of Pages in PDF File: 47

Keywords: Financial Statement Analysis, value, glamour, market efficiency, expectation errors

JEL Classification: M40, M41, G10, G11, G12, G14

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Date posted: February 8, 2011 ; Last revised: October 8, 2013

Suggested Citation

Piotroski, Joseph D. and So, Eric C., Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach (May 9, 2012). Review of Financial Studies (RFS), 25(9): 2841-2875 . Available at SSRN: http://ssrn.com/abstract=1757025 or http://dx.doi.org/10.2139/ssrn.1757025

Contact Information

Joseph D. Piotroski
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

Eric C. So (Contact Author)
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
77 Massachusetts Ave.
E62-416
Cambridge, MA 02142
United States
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