Performance in EPS-Weighted Portfolio

• Main Authors: Pei-Ying Chen, 陳荔
• Other Authors: An-Sing Chen
• Format: Others
• Language: en_US
• Online Access: http://ndltd.ncl.edu.tw/handle/94481596064920660877

碩士 === 國立中正大學 === 財務金融所 === 94 === This study investigates whether the EPS-weighted portfolio outperforms the value-weighted and price-weighted portfolios for the Dow Jones Industry Average (DJIA) stocks. Due to the price informative in the inefficient market, the value-weighted and price-weighted methods often put over-weights on overvalued stocks and put under-weights on undervalued stocks. In order to avoid this problem, we reweigh stocks composed of the Dow Jones Industry Average Index based on the EPS-Momentum and the EPS-Reversal. The results show the reversal EPS-weighted portfolio does outperform than other indices in favorable economic situations, which implies that investors tend to overreact to the informational content of the EPS, especially to analysts’ EPS forecasts. In addition, the worse performance of EPS-Momentum portfolios is attributable to the fact that the EPS has no momentum effect.