What information do investor combine to estimate stock price

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1. Empirically, we find that stocks with low P/E ratios on average have a higher risk adjusted returns than stocks with high P/E ratios. This is known as the P/E anomaly. We think the P/E anomaly is because investors tend to:

overestimate the discount rate of high P/E stocks

underestimate the growth rate of high P/E stocks.

overestimate the growth rate of high P/E stocks.

underestimate the discount rate of high P/E stocks.

2. What information do investors combine to estimate a stock’s price?

Cash-flows and Discount Rates

Cash-flows and earnings

Cash-Flows and P/E ratios

Discount Rates and earnings

Reference no: EM131997815

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