THE ANALYSIS OF THE PER EFFECT IN THE FINANCIAL MARKETS OF CEEC
THE ANALYSIS OF THE PER EFFECT IN THE FINANCIAL MARKETS OF CEEC

Summary/Abstract: The price-earnings ratio (PER) effect is a well-documented phenomenon in the most developed financial markets. This effect shows that the firms with a low price to earning per share ratio exhibit higher returns than those with a high ratio. The existence of such an effect weakens the market efficiency hypothesis, and several attempts have been made to explain this situation. The recent expansion of financial markets in Central and Eastern Europe along with their integration into the European Union and the Euro zone raises further questions concerning the current level of their financial development. Our results show that even if some PER effects appear in some markets, they have little impact on returns. Furthermore, the differences in PER do not imply any corresponding volatility of returns and no size effect disturbs these conclusions. An interesting consequence of this is that the PER ratio is useless as a criterion in an investment strategy. Nevertheless, it is possible that the concentration of market capitalizations and the relatively small number of listed firms makes the perception of stock market abnormalities more intricate.

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