The relationship between stock returns and enterprise multiple: Evidence from European stock market

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School of Business | Bachelor's thesis
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Date

2023

Department

Rahoituksen laitos

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Mcode

Degree programme

Rahoitus

Language

en

Pages

32

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Abstract

In this paper, I analyze the relationship between monthly stock return and enterprise multiple in European stock market from 1991 to 2021. I find that enterprise multiple is a significant predictor of monthly stock returns, with low enterprise multiple stocks, value stocks, outperforming high enterprise multiple stocks, growth stocks, by 0.89% per month. I find that the negative relation between stock returns and enterprise multiple cannot be fully explained by traditional asset pricing models such as CAPM, Fama-French three-factor model, Carhart four-factor model and Q-theory factor model. Additionally, the EM based value premium is robust against the January seasonal effect and the poor performance of small, young growth stocks, and persists for holding periods longer than one year.

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Thesis advisor

Kokkonen, Joni

Keywords

enterprise multiple, value premium, EM factor, European stock market

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https://urn.fi/URN:NBN:fi:aalto-202311126798

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[kand] Kauppakorkeakoulu / BIZ (Open Access)