The profitability of trading strategies based on book value and earnings in Hong Kong : Market inefficiency vs. risk premia

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Detail(s)

Original languageEnglish
Pages (from-to)204-233
Journal / PublicationJournal of International Financial Management and Accounting
Volume8
Issue number3
Publication statusPublished - 1997
Externally publishedYes

Abstract

Using a sample of Hong Kong firms, we have examined the relative and incremental usefulness of book-to-price ratio (B/P), and earnings-to-price ratio (E/P) for providing profitable trading strategies or for predicting stock returns. Our results show that trading strategies based on B/P or E/P yield significant excess returns for various holding periods up to two years, and that B/P and E/P are not only individually but also incrementally useful for predicting stock returns. Further, results of various tests indicate that trading profits observed from the B/P strategy are likely to be a result of B/P proxying for risk differentials, while those from the E/P strategy are related to gains from exploitation of market inefficiency or mispricing. The two ratios appear to capture different aspects of firm value in Hong Kong. © Blackwell Publishers Ltd. 1997.

Citation Format(s)

The profitability of trading strategies based on book value and earnings in Hong Kong : Market inefficiency vs. risk premia. / Cheung, Joseph K.; Chung, Richard; Kim, Jeong-Bon.

In: Journal of International Financial Management and Accounting, Vol. 8, No. 3, 1997, p. 204-233.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review