Predicting of Equity Premium: Empirical Evidence from PEG Models

Subject Areas : Journal of Investment Knowledge

Ali Rahmani ¹ , Mohammad Tasharofi ² , Ali Saghafi ³ , Saber Sheri ⁴

1 - Associate Professor of Alzahra University, Tehran, Iran
2 - PhD Student of Allame Tabatabai University, Tehran, Iran.
3 - Professor of Allame Tabatabai University, Tehran, Iran.
4 - Assistant Professor of Allame Tabatabai University, Tehran, Iran. (Corresponding Author)

Received: 2017-04-17 Accepted : 2017-07-23 Published : 2017-10-23

Keywords: PEG Model, Size Sffect, Value Effect, PEG Effect, Equity Premium,

Abstract :

Pricing of financial assets and identify important risk factors is one of the fundamental issues of finance theory. In this study, using insights of CAPM and three-factor model (Fama and French, 1993), PEG and four-factor models was developed. Using financial data of 270 companies traded in TSE during the beginning of 2006 to the end of 2014, three-stage methodology and the portfolio study methodology used to calculate the risk factor. The results show that first, there are inverse size effects, inverse value effects and PEG effects, second, PEG model cannot explain stock risk premium, But the four-factor model compared with other models, has higher power for explaining of the risk premium. Market participants can use these results to improve investment performance and academics recommended that test models of the study.

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