Basu (1977, 1983) found that firms with low P/E ratios
A) earned higher average returns than firms with high P/E ratios.
B) earned the same average returns as firms with high P/E ratios.
C) earned lower average returns than firms with high P/E ratios.
D) had higher dividend yields than firms with high P/E ratios.

Question

Quizplus · Accepted Answer

Basu's research indicated that firms with low P/E ratios tended to earn higher average returns compared to firms with high P/E ratios, suggesting a potential value investing strategy.

Basu (1977, 1983) Found That Firms with Low P/E Ratios