(2009) Allison, Dylan Mayne.; Geach, Walter Dayson.
The theory behind the efficient market hypothesis exerts that it is not possible to consistently outperform
the overall stock market by using stock picking and market timing strategies. The argument holds
that, in an efficient market, all stock prices are appropriately priced and there is no over- or undervalued
stocks to be found. Nevertheless, deviations from true stock prices can occur according to the hypothesis,
although these deviations are mostly random occurrences. Thus, the only way an investor can
outperform the overall stock market is by luck alone. However, the efficient market hypothesis is a
controversial topic where it is often discussed within modern financial circles where academic theory
has strong arguments both for and against the theory.
Purpose:
The purpose of this study is to investigate whether it is feasible to outperform the overall stock market
through investing in stocks that appear undervalued according to enterprise multiple (EV/EBITDA)
and the price-earnings ratio.
