Basu (1977,1983)found that firms with high P/E ratios
A)earned higher average returns than firms with low P/E ratios.
B)earned the same average returns as firms with low P/E ratios.
C)earned lower average returns than firms with low P/E ratios.
D)had higher dividend yields than firms with low P/E ratios.
E)none of the above.

Question

Quizplus · Accepted Answer

Basu found that firms with high P/E ratios earned lower average returns than firms with low P/E ratios, indicating that low P/E stocks tend to outperform high P/E stocks.

Basu (1977,1983)found That Firms with High P/E Ratios