Research Article
PE Factor in the Asset Pricing
@INPROCEEDINGS{10.4108/eai.6-1-2023.2330278, author={Jiaxin Lyu}, title={PE Factor in the Asset Pricing}, proceedings={Proceedings of the 2nd International Conference on Big Data Economy and Digital Management, BDEDM 2023, January 6-8, 2023, Changsha, China}, publisher={EAI}, proceedings_a={BDEDM}, year={2023}, month={6}, keywords={p/e ratio asset pricing fama-french three factor model capm}, doi={10.4108/eai.6-1-2023.2330278} }- Jiaxin Lyu
Year: 2023
PE Factor in the Asset Pricing
BDEDM
EAI
DOI: 10.4108/eai.6-1-2023.2330278
Abstract
This paper attempts to study the relationship between price-earnings ratio and stock returns. We find that stocks with lower price-earnings ratio can obtain higher returns than stocks with higher price-earnings ratio. This finding applies not only to simple returns, but also to risk-adjusted returns based on CAPM, as well as Fama-French (1993) three-factor model. In addition, to test the ability of PE risk factors in explaining asset prices, this price-earnings ratio factor is added into the Fama- French three-factor model as a new pricing factor. The results show that PE risk factor significant affect stock returns. This contributes to the asset pricing literature.
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