P/E Ratios and Value Investor Attention

55 Pages Posted: 12 Jun 2017

See all articles by Jordan Moore

Jordan Moore

Rowan University - Accounting & Finance

Date Written: June 8, 2017

Abstract

Price-earnings (P/E) ratios, the most popular value proxy, are widely reported using the last four quarters of earnings. Corresponding earnings yields (4QEP) have significantly greater return predictability than lagged earnings yields or current book-to-market ratios. The weekly pattern in returns is consistent with individual investor trading activity. The return predictability is robust to fundamentals, price momentum, earnings momentum, volume, and liquidity. 4QEP relates positively to volume and liquidity and negatively to idiosyncratic volatility. Financial data providers only report P/E ratios for stocks with positive earnings; 4QEP only predicts returns, volume, and liquidity for these stocks.

Keywords: P/E Ratios, Limited Attention, Investor Behavior, Trading Volume, Liquidity, Idiosyncratic Volatility

JEL Classification: G12, G02

Suggested Citation

Moore, Jordan, P/E Ratios and Value Investor Attention (June 8, 2017). Available at SSRN: https://ssrn.com/abstract=2983270 or http://dx.doi.org/10.2139/ssrn.2983270

Jordan Moore (Contact Author)

Rowan University - Accounting & Finance ( email )

Glassboro, NJ 08028
United States

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