Year of Graduation
Long-Term Profitability of Investing in Stocks with Low Multipliers and Declining Prices on the Russian Stock Market
Despite the existence of the efficient market hypothesis’ evidence, there are anomalies on the stock market that allow to obtain excess returns over a long time interval. This temporary deviation between the market price of an asset and its intrinsic value is the base for a large number of investment strategies and concepts, one of which is the fundamental analysis and the value investing as its direction. Its essence lies in long-term cash investments in "cheap" shares with low P/BV, P/E, P/CF, P/S, P/D, EV/EBITDA multipliers or declining in recent years. The effectiveness of value-based investment strategies was proved using the data in the XX-XXI centuries of the USA, Canada, the United Kingdom, Japan, Hong Kong, Singapore, Australia, Europe and other countries, but almost was not analyzed in developing countries. This study examines the effectiveness of the long-term investments for 3 years in ordinary shares of Russian companies with low multiples, high dividend payments or declining prices for the previous 1 and 5 years listed on the Moscow stock exchange in 2005-2017. It was empirically revealed that the "value" shares provide a real rate of return higher than the "glamor" ones with high multiples, the weighted average interest rate of deposits and the Russian stock market, where the "low market capitalization effect" is observed. The existence of a strong correlation between the portfolio's excess return and its volatility as a measure of risk has been proved, therefore the most attractive strategies are the investments in the shares whose prices have decreased over the previous 5 years and with low P/S ratios for investors who primarily value the yield and are not afraid to take risks, and low P/CF for conservative investors who are not prone to risk.