Match List I with List II

LIST I (Research Outcomes)		LIST II (Research Studies)
A.	Low Price- earnings ratio stocks outperform high Price-earning ratio stocks	I.	Peters (1991)
B.	Low PEG (p-e ratio/Earnings growth rate) stocks outperform high PEG stocks	II	Fama and French (1992)
C.	Small firms consistently experience risk-adjusted returns	III.	Basu (1977)
D.	High book value/market value ratio stocks yield higher returns	IV.	Banz (1981)

Choose the correct answer from the options given below: 

The correct answer is 'A-III, B-II, C-IV, D-I'.

Key Points

• Low Price-earnings ratio stocks outperform high Price-earnings ratio stocks (A) matches with Basu (1977) (III).
  • Basu's 1977 study demonstrated that stocks with low P/E ratios tend to provide higher returns compared to those with high P/E ratios.
  • This finding challenges the efficient market hypothesis by suggesting that low P/E stocks are undervalued.
  • The study indicates a potential for investors to earn abnormal returns by selecting low P/E ratio stocks.
  • It highlights the importance of valuation metrics in investment decision-making.
• Low PEG (price-earnings growth) ratio stocks outperform high PEG stocks (B) matches with Fama and French (1992) (II).
  • Fama and French's 1992 research focused on various market anomalies, including the performance of low PEG ratio stocks.
  • They found that stocks with low PEG ratios tend to outperform those with high PEG ratios, suggesting a growth-value anomaly.
  • The study integrated the PEG ratio as an additional factor influencing stock returns.
  • It provided evidence supporting the value investing strategy.
• Small firms consistently experience risk-adjusted returns (C) matches with Banz (1981) (IV).
  • Banz's 1981 study revealed that small-cap stocks typically yield higher risk-adjusted returns compared to large-cap stocks.
  • This phenomenon is often referred to as the "size effect" in financial markets.
  • The study's findings suggest that investors could potentially enhance portfolio performance by including small-cap stocks.
  • It challenges the notion that all market segments are equally efficient.
• High book value/market value ratio stocks yield higher returns (D) matches with Peters (1991) (I).
  • Peters' 1991 research indicated that stocks with high book-to-market value ratios tend to outperform those with lower ratios.
  • This finding is aligned with the value investing philosophy, which favors undervalued stocks.
  • The study provided empirical support for the predictive power of the book-to-market value ratio in assessing stock returns.
  • It reinforced the relevance of fundamental analysis in investment strategies.