The Efficiency of Individual and Composite Measures for Identifying Value Stocks

19 Pages Posted: 1 Oct 2001

See all articles by Manjeet S. Dhatt

Manjeet S. Dhatt

University of Minnesota - Duluth - Department of Finance and Management Information Sciences

Yong H. Kim

University of Cincinnati

Sandip Mukherji

Howard University - School of Business

Date Written: June 2001

Abstract

We determined whether there is a significant value premium for a broad cross-section of tradable U.S. stocks, examined the relative efficiency of individual value measures, and investigated whether composite value measures can be used to enhance the performance of value portfolios. Our results show that value portfolios dominate growth portfolios. Among portfolios based on individual valuation ratios, low-P/S provides the highest excess returns, while low-P/C offers the lowest risk and best risk-return tradeoff. However, using composite value measures expands the set of efficient portfolios, enabling investors to achieve a wider range of risk-return tradeoffs.

Keywords: value premium, price/earnings, price/sales, price/cash flow, market/book, portfolio

JEL Classification: G11, G14

Suggested Citation

Dhatt, Manjeet S. and Kim, Yong H. and Mukherji, Sandip, The Efficiency of Individual and Composite Measures for Identifying Value Stocks (June 2001). Available at SSRN: https://ssrn.com/abstract=285200 or http://dx.doi.org/10.2139/ssrn.285200

Manjeet S. Dhatt

University of Minnesota - Duluth - Department of Finance and Management Information Sciences ( email )

Duluth, MN 55812-2496
United States
218-726-7836 (Phone)

Yong H. Kim (Contact Author)

University of Cincinnati ( email )

Lindner College of Business
410 Carl H. Lindner Hall, P.O. Box 210195
Cincinnati, OH 45221
United States
513-556-7084 (Phone)
513-556-0979 (Fax)

Sandip Mukherji

Howard University - School of Business ( email )

2600 Sixth Street, NW
Washington, DC 20059
United States
202-806-1591 (Phone)

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