Huang, Ying; Tsai, Chia-Hui; Chen, Carl R. - In: International Journal of Business and Economics 6 (2007) 1, pp. 11-28
We decompose P/E ratios into a fundamental component and a residual component that cannot be explained by the firm or … economic fundamentals. Purging the fundamental component from observed P/E ratios, we find that portfolios based on residual P/E … ratios exhibit performance reversal only in overbid glamour stocks; hence over-optimism is more prevalent than over-pessimism. …