A dynamic analysis of stock price ratios
Antoine Giannetti and
Ariel Viale ()
Applied Financial Economics, 2011, vol. 21, issue 6, 353-368
Stock price ratios have long been used by finance practitioners as a relative value metric. A popular argument for this widespread use is that stock price ratios tend to revert to their long-run mean so that substantial deviations from historical averages could successfully be arbitraged away. In this work, we lay out the theoretical conditions for the ratio of stock prices to be a stationary process. In particular, we theoretically relate price ratio stationarity to economic mean reversion in profitability (as measured by dividends or earnings price ratios) across securities. We further test our theoretical predictions using a popular example of 'close' stocks.
References: View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:21:y:2011:i:6:p:353-368
Ordering information: This journal article can be ordered from
Access Statistics for this article
Applied Financial Economics is currently edited by Anita Phillips
More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().