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Multiples Valuation and Abnormal Returns

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Date
2015-04-17
Author
Yoon, Jun
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Abstract
I investigate whether three commonly used valuation multiples—the Price-to-Earnings Ratio, the EV-to-EBITDA multiple, and the EV-to-Sales multiple—can be used to identify mispriced securities. I find that multiples are successful in identifying mispricing in both the equal and value weighted portfolios relative to the One-Factor CAPM. I further find, after controlling for size and value effects, that the bulk of the abnormal returns are concentrated in smaller firms. Moreover, the Sales multiple seems to outperform the other two multiples in the equal weighted design. In the value weighted design, however, the P/E ratio outperforms the others.
Type
Honors thesis
Department
Economics
Subject
Equity Valuation
Multiples valuation
market efficiency
long-run abnormal returns
Permalink
https://hdl.handle.net/10161/9589
Citation
Yoon, Jun (2015). Multiples Valuation and Abnormal Returns. Honors thesis, Duke University. Retrieved from https://hdl.handle.net/10161/9589.
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This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.

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