As fundamental analysis in finance has developed over the years, various metrics have been tested as differentiators of cross-sectional return. In value investing, two of the most commonly cited measures are the book-to-price ratio (B/P) and the earnings-to-price ratio (E/P). Ran Leshem, Lisa Goldberg and Alan Cummings of Aperio Group evaluate the performance of strategies based on B/P and E/P in Optimizing Value, published in the Winter 2016 issue of The Journal of Portfolio Management.They explain why B/P became the academic standard in the 1990s and discuss the wisdom of blending B/P and E/P metrics into optimized strategy formats. The team also looks at factor-based optimization and sector-neutral strategies that may help to achieve better performance.
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