Date of Project
W. Fielding Rubel School of Business
Francis E. Raymond
This thesis examines the question of whether a company’s stock classification as either growth or value, as indicated by its trailing twelve-month price-to-equity (TTM P/E) ratio or price-to-tangible-book value (TTM PTBV) ratio, has an impact on the price retracement toward, or continued divergence from the previous fair market value of the stock subsequent to a market-moving event uncorrelated with a 10-K or 10-Q filing by the company of interest. The categorization of growth versus value is non-binary and dependent on each firm’s TTM P/E ratio and TTM PTBV ratio (in a secondary model), with a higher ratio in both cases indicating a greater growth-orientation and a lower ratio indicating a greater value-orientation. The study finds that none of the relevant fundamental variables included in the models (including the growth-value proxies) are significant in determining the direction and magnitude of a stock’s price movement following a random price shock. This finding revealed two significant insights with regard to the predictability of stock movements. Firstly, that ratios, profitability measures, and trading multiples are all inherently limited in their predictive value. Secondly, gathered from the overwhelming significance ascribed to the industry-performance variable included in the model, that the “tide” of the market has such an overwhelming influence on a company’s stock price over the time period observed as to negate any potential influence of the above listed fundamental metrics.
Braden, Noah, "Predictability of Mid-to-Long Term Price Direction Following Price Shocks Unassociated with Regularly Scheduled Earnings Calls in Domestic Equity Markets" (2019). Undergraduate Theses. 37.