n South African Journal of Business Management - The price-to-book effect on the JSE : valuation disparities and subsequent performance

Volume 45, Issue 4
  • ISSN : 2078-5585


The purpose of this study was to determine whether the relative out- or underperformance of a value portfolio versus a growth portfolio can be anticipated in advance by comparing a valuation difference multiple with the subsequent five-year relative performance of the value and growth portfolios. The valuation difference multiple was calculated as the median price-to-book value (P/B) ratio of the growth portfolio divided by the median P/B ratio of the value portfolio. Using monthly data for the period 1991 to 2011, this study found that in most instances the higher the valuation difference multiple, the higher the outperformance of the value portfolio over the subsequent five-year period, as compared to the growth portfolio.

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