Examining the Performance of a Value Investing Heuristic: Evidence from the S&P/TSX 60 from 2001-2011
Otuteye, E., & Siddiquee, M. (2013). Examining The Performance of a Value Investing Heuristic: Evidence From The S&P/TSX 60 From 2001-2011. Journal of Business Economics & Finance, 2(4), 67-81
14 Pages Posted: 17 Apr 2013 Last revised: 17 Oct 2017
Date Written: May 17, 2012
Heuristics are useful practical tools for cutting through the complex confluence of uncertainty, limited information and bounded rationality. We develop a simple heuristic for making value investing decisions based on profitability, financial stability, susceptibility to bankruptcy, and margin of safety. As an empirical test, we apply this heuristic to the S&P/TSX 60 group of companies of the Toronto Stock Exchange. Analysis of the data shows that the portfolio that is picked from the S&P/TSX 60 by the heuristic has desirable characteristics required of value portfolios. Thus the heuristic can be viewed as a reliable set of value investing decision criteria.
Keywords: Value investing, Heuristic, Value premium, Skewness
JEL Classification: G11
Suggested Citation: Suggested Citation