The effect of ownership structure on the price earnings ratio — returns anomaly

Houmes, Robert; Chira, Inga

doi:10.1016/j.irfa.2014.11.017

Cited by 23 publications

(11 citation statements)

References 24 publications

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“…It is not easy to identify whether an asset or security is overvalued. However, a high price-earnings (P/E) ratio is one of the techniques to gauge whether a security is overvalued (Basu, 1977; Beaver and Morse, 1978; Houmes and Chira, 2015; Nicholson, 1960). In the context of the housing market, the P2R ratio is considered an important method to examine whether a house price or rent is overvalued.…”

Section: Literature Reviewmentioning

confidence: 99%

Modeling of residential property rents in Somalia using two-stage modeling

Nor

Masron

Gedi

2019

IJHMA

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Purpose Real estate is one of the fundamental growth engines for developing economies as it contributes urbanization and infrastructure development. In recent years, Somalia has witnessed massive real estate development in both housing and commercial buildings. The purpose of this study is twofold. First, the study examines the determinants of residential property rents. Second, it investigates whether residential property rents are fairly valued. Design/methodology/approach This study uses two-stage modeling. A hedonic regression model is used in the first stage, while an artificial neural network is applied in the second stage. Findings After analysis, this study established that size, location and security of a residential property have a significant influence on its monthly rents. Alternatively, the study identified that residential property rents are not fairly valued in Mogadishu and overvaluation is more frequent than undervaluation. Originality/value This implies that Somalia’s real estate industry is more speculative-driven than real demand-driven. Though Somali real estate is an infant industry with huge potentials in the long run, it may end up disastrously following the well-known bubble-then-burst behavior. To avoid such crisis, this study recommends formulating government policies that regulates, supervises and protects the infant real estate industry without undermining the needs of the poor and low-income citizens.

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Section: Literature Reviewmentioning

confidence: 99%

Modeling of residential property rents in Somalia using two-stage modeling

Nor

Masron

Gedi

2019

IJHMA

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“…The company's performance is good or bad; it can be seen from the financial ratio of Earning per Share (EPS) and Price-earnings Ratio. Earnings per Share is a ratio that shows how much profit (return) investors get for each Share (Rahman & Shamsuddin, 2019;Houmes & Chira, 2015). EPS shows that the greater the profit of each Share for the owner, it will affect its stock return in the capital market.…”

Section: Introductionmentioning

confidence: 99%

Market performance and corporate governance in banking sector Indonesia stock exchange

Amelia

Adam

Isnurhadi

et al. 2021

ijbem

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This research aimed to determine the effect of market performance and corporate governance on the banking sector listed on the Indonesia Stock Exchange (IDX). The sample used as many as 20 companies during the 2015-2019 period using a purposive sampling technique. The data analysis technique used is linear regression analysis. The results obtained from the research are that Earnings per Share and Price Earnings Ratio influences stock returns in the banking sector and Good Corporate Governance can moderate Earnings per Share and Price Earnings Ratio on stock returns.

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“…Due to its intuitive appeal and practical simplicity, the price-earnings (P/E) ratio has long been considered as one of the most frequently used measures of stock valuation. A large number of studies of the determinants of P/E ratio focus on whether the variations of P/E ratio can be explained by macroeconomic factors and firm fundamentals such as risk-free interest rate, inflation, equity risk premium, firm size, leverage ratio, dividend payout ratio, earnings growth and price volatility (Anderson and Brooks, 2006; Chen et al , 2015; Cho, 1994; Chua et al , 2015; Houmes and Chira, 2015; Jitmaneeroj, 2016; Kane et al , 1996; Ramcharran, 2002; Reilly et al , 1983; White, 2000). These studies commonly find that the P/E ratio has a positive relationship with dividend payout ratio, firm size and growth of earnings but a negative relationship with risk-free rate, equity risk premium and leverage ratio.…”

Section: Introductionmentioning

confidence: 99%

Does investor sentiment affect price-earnings ratios?

Jitmaneeroj

2017

SEF

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Purpose A large number of empirical studies investigate the determinants of price-earnings (P/E) ratio by focusing on fundamental factors. However, there has been an increasing concern that stock valuation is also driven by investor sentiment. This paper aims to extend the existing literature by exploring whether investor sentiment impacts the P/E ratio. Design/methodology/approach The paper examines the determinants of P/E ratio by applying latent variable models with investor sentiment as a latent variable and several fundamental factors as control variables. Investor sentiment is proxied by trading volume, advance-decline ratio and price volatility. Findings Using annual data of the US industries over the period of 1998-2014, the current paper produces new empirical evidence that investor sentiment significantly affects the P/E ratio. This result is robust to the inclusion of several control variables that have been documented to explain the P/E ratio. Practical implications The findings have important implications for investors, as downplaying sentiment can lead to significant errors in making equity investment choices based on the P/E ratio. Originality/value The analytical framework of the current paper is differentiated from the conventional analysis in which the P/E ratio is regressed against control variables and proxies for sentiment, thus falling into the trap of implicitly presupposing that proxies are perfect measures of investor sentiment. As all proxies may have measurement errors to the true but unobservable investor sentiment, the current paper uses latent variable models to shed new light on the influence of investor sentiment on the P/E ratio.

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The effect of ownership structure on the price earnings ratio — returns anomaly

Cited by 23 publications

References 24 publications

Modeling of residential property rents in Somalia using two-stage modeling

Modeling of residential property rents in Somalia using two-stage modeling

Market performance and corporate governance in banking sector Indonesia stock exchange

Does investor sentiment affect price-earnings ratios?

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