An Investigation of the Firm Effects Influence in the Analysis of Earnings to Price Ratios of Industrial Common Stocks

Peter S. Chung

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 6, 1009-1029

Abstract: In the past most of the studies whose aim was to explain earnings-to-price ratios (or alternatively, price-earnings ratios) of common stocks attempted to answer the much-debated question raised in both investment and academic circles: Why does a given common stock consistently command a higher price relative to its earnings vis-a-vis other stocks? Success in answering this question has been limited, largely due to (1) researchers' inability to incorporate expected earnings (E) correctly into the empirical measurement of earnings-to-price ratio and/or (2) inadequate treatment of risk variables to explain variability of earnings-to-price ratio.

Date: 1974
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