Value Investing in Thailand: Evidence from the Use of PEG

Paiboon Sareewiwatthana

School of Business, National Institute of Development Administration, Bangkok, Thailand.

DOI: 10.4236/ti.2012.32014                

Abstract

Value investing has gained popularity as a number of researches showed that various investment strategies based on this concept could generate significantly higher returns than the market. Investment using PEG as a selection rule was developed from the strategy based on P/E ratio. A test was conducted in this study to evaluate whether the investment strategy based on PEG ratio could be applied to the investments in the Stock Exchange of Thailand. Using the data from 1999-2010, the results showed that PEG ratio was effective in generating higher returns than the stock exchange’s total return index throughout the analysis of 12-year research data.

Keywords

Value Investing; PEG; the Stock Exchange of Thailand

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	B. Graham, “The Intelligent Investor,” Revised Edition, HarperCollins, New York, 2003.
[2]	J. D. Schatzberg and G. Vora, “PEG Investing Strategy: A Revisit,” Quarterly Journal of Finance and Accounting, Vol. 48, No. 2, 2009, pp. 5-22.
[3]	A. Robichek and M. Bogue, “A Note on the Behavior of Expected Price/Earnings Ratios over Time,” Journal of Finance, Vol. 26, No. 3, 1971, p. 731. doi:10.1111/j.1540-6261.1971.tb01726.x
[4]	R. Banz, “The Relation between Return and the Market Value of Common Stocks,” Journal of Financial Economics, Vol. 9, No. 1, 1981, pp. 3-18. doi:10.1016/0304-405X(81)90018-0
[5]	M. Reinganum, “Misspecification of Capital Asset Pricing: Empirical Anomalies Based on Earnings Yields and Market Values,” Journal of Financial Economics, Vol. 9, No. 1, 1981, pp. 19-46. doi:10.1016/0304-405X(81)90019-2
[6]	E. F. Fama and K. R. French, “Common Risk Factors in the Returns on Stocks and Bonds,” Journal of Financial Economics, Vol. 33, No. 1, 1993, pp. 3-56. doi:10.1016/0304-405X(93)90023-5
[7]	M. Grinblatt, and S. Titman, “Financial Markets and Corporate Strategy,” 2nd Edition, McGraw-Hill, New York, 2001.
[8]	J. Gomes, L. Kogan and L. Zhang, “Equilibrium Cross Section of Returns,” Journal of Political Economy, Vol. 111, No. 4, 2003, pp. 693-732. doi:10.1086/375379
[9]	E. F. Fama and K. R. French, “Multifactor Explanations of Asset Pricing Anomalies,” Journal of Finance, Vol. 51, No. 1, 1996, pp. 55-84. doi:10.2307/2329302
[10]	R. Petkova and L. Zhang, “Is Value Riskier than Growth?” Journal of Financial Economics, Vol. 78, No. 1, 2005, pp. 187-202. doi:10.1016/j.jfineco.2004.12.001
[11]	J. Lakonishok, A. Shleifer and R. W. Vishny, “Contrarian Investment, Extrapolation, and Risk,” Journal of Finance, Vol. 49, No. 5, 1994, pp. 1541-1578. doi:10.2307/2329262
[12]	C. C. Holt, “The Influence of Growth Duration on Share Prices,” Journal of Finance, Vol. 17, No. 3, 1962, pp. 465-475. doi:10.2307/2977053
[13]	B. Malkiel, “Equity Yields, Growth, and the Structure of Share Prices,” American Economic Review, Vol. 53, No. 5, 1963, pp. 1004-1031.
[14]	Z. Sun, “The PEG Ratio and Stock Valuation,” The University of Toronto, Toronto, 2001.
[15]	P. Easton, G. Taylor, P. Shroff and T. Sougiannis, “Using Forecasts of Earnings to Simultaneously Estimate Growth and the Rate of Return on Equity Investment,” Journal of Accounting Research, Vol. 40, No. 3, 2002, pp. 657-676. doi:10.1111/1475-679X.00066
[16]	P. Easton, “P/E Ratios, PEG Ratios, and Estimating the Implied Expected Rate of Return,” The Accounting Review, Vol. 79, No. 1, 2004, pp. 73-75.
[17]	J. Estrada, “Adjusting P/E Ratios by Growth and Risk: The PERG Ratio,” IESE Business School, Barcelona, 2005.
[18]	N. Hemwachirawarakorn and P. Intara, “Value Investment and Returns in Thai Market,” NIDA Business Journal, Vol. 5, No. 5, 2009, pp. 77-90.
[19]	S. Supattarakul and P. Jongjaroenkamol, “The Determinants of Price-to-Book Value (P/B) and Price-to-Earnings (P/E) Ratios Based on the Residual Income Model,” Thammasat Business Journal, Vol. 125, 2010, pp. 7-31.
[20]	P. Sareewiwatthana, “Value Investing in Thailand: The Test of Basic Screening Rules,” International Review of Business Research Papers, Vol. 7, No. 4, 2011, pp. 1-13.
[21]	N. Maneesilasan, “GARP Investing in Thailand,” Working Paper, National Institute of Development Administration, Bangkok, 2011.
[22]	W. Sharpe, “Capital Asset Price: A Theory of Market Equilibrium under Conditions of Risk,” Journal of Finance, Vol. 19, No. 3, 1964, pp. 425-442.