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Returns to E/P Strategies, Higgledy-Piggledy Growth, Analysts' Forecast Errors, and Omitted Risk Factors
Nov 1, 1993
The authors document that high E/P stocks historically have generated positive alphas, and low E/P stocks have generated negative alphas. They attempt to explain this phenomenon by analyzing three variables: earnings growth rates subsequent to forming E/P portfolios, analysts' forecast errors, and possible omitted risk factors. They find these variables do not account for the abnormal returns associated with high and low E/P strategies. Thus, the "E/P effect" remains an enigma.
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