A survey of the way equity research is being done in India revealed
that analysts mainly use the P/E approach to value the stock. The
most difficult part of equity research is also found to be the
largely unpredictable nature of P/E ratio. This book attempts to
answer the question of whether excess return can be earned by
forecasting EPS alone. Using a Logit-based forecasting model, Ou
and Penman (1989) have shown that excess return can be obtained by
forecast ing the direction of movement of EPS in the US capital
market. A similar study done here for the Indian stock market shows
that one can obtain excess return by forecasting the direction of
movement of the EPS. In the second part of the book, an attempt has
been made to empirically test APT in India. However, it is found
out that none of the factors seem to be priced in India. This may
either mean that the sample size is too small to do any meaningful
test of APT. It may also mean that the APT does not work in the
Indian context.
Prof. Mohanty received his PhD in Finance from the IIM Bangalore in 1997. He was a Fulbright Visiting Scholar at NYU Stern School of Business during 2009-10. His research interests include Market efficiency, Asset Pricing, Corporate Restructuring. He has published more than 20 papers in Indian and International Journals.
