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P/E Ratio Effect on the Stock Returns in the Banking Industry – An Empirical Study in National Stock Exchange, India

Year 2015
Volume/Issue/Review Month Vol. - VIII | Issue II | July - December
Title P/E Ratio Effect on the Stock Returns in the Banking Industry – An Empirical Study in National Stock Exchange, India
Authors Radhakrishna Mishra , Dr. Rashmita Sahoo
Broad area P/E Ratio Effect on the Stock Returns in the Banking Industry – An Empirical Study in National Stock Exchange, India
Abstract
Economists around the world have always tried to find out the presence of anomalies in the stock market. With a
view to earn a quick buck in the market, investors always search for alternatives. An investment strategy based on
purchasing low price-earning stocks is said to help in beating the index. This so called price-earning effect is such
an anomaly. The purpose of this study is to verify the impact of price-earning ratio on the stock returns in the
banking industry. This paper tries to find out answer to the question “Whether one can make abnormal returns by
taking advantage of price-earning ratio effect in the banking industry? The stock returns are calculated and compared
by using certain statistical tools. The stocks are divided into three categories based on price-earning ratio (i.e. Low
= 0 to 10, Mid = 10 to 20 and High = More than 20). After this all the three portfolios are compared by using ANOVA
and Correlation analysis to study the presences of the P/E ratio effect in the banking industry in Indian stock
market (i.e. National Stock Exchange). However, the result of the study reveals the absence of P/E ratio effect on
the stock returns in the banking industry
Description During the last decade, the Indian stock market has shown metamorphic changes. This has motivated academicians and practitioners to find out ways to get more return from the market. Certain studies have shown the presence of anomalies in the stock market
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