Studies of the relationship between P/E ratios and stock returns have found that
A) Low P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
B) Low P/E stocks of small cap stocks outperformed high P/E stocks of large cap stocks.
C) High P/E stocks of large cap stocks outperformed low P/E stocks of small cap stocks.
D) High P/E stocks of large cap stocks outperformed high P/E stocks of small cap stocks.
E) none of the above.

Question

Quizplus · Accepted Answer

Studies have found that low P/E stocks of small cap stocks tend to outperform high P/E stocks of large cap stocks. This is believed to be due to the smaller company size and potential for growth in small cap stocks, which leads to higher returns.

Studies of the Relationship Between P/E Ratios and Stock Returns