Revisiting price-earning (P/E) ratio anomaly: An empirical analysis

This paper re-examines the “Price-Earning Ratio Anomaly” on stock return in Indian equity market. The basic data for the study consists of month-end closing share prices collected from the Prowess database maintained by Center for Monitoring Indian Economy. The sample consists of 250 companies forming part of BSE 500 equity index. A study period of seven years, i.e. from October 2003 to September 2010 has been considered. Further the whole period has been divided into two non-overlapping periods i.e. October 2003 to December 2007 and January 2008 to September 2010. Jensen alpha, Trey nor and Sharpe measures have been computed along with portfolio standard deviation, average rate of return and mean excess return of portfolios. The study concludes that investors are unable to earn abnormal returns by investing in low P/E stocks. Market portfolio performed better than large P/E portfolios.