Proceedings of the 2nd International Conference on Big Data Economy and Digital Management, BDEDM 2023, January 6-8, 2023, Changsha, China

Research Article

PE Factor in the Asset Pricing

Download225 downloads
  • @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
Jiaxin Lyu1,*
  • 1: University Rd, Belfast BT7 1NN.
*Contact email: jlyu04@qub.ac.uk

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.