Analysing the performances of portfolios formed based on the market value (firm size) and price/ earnings ratio during 1995-2000 in İMKB

ABSTRACT The highest earnings with the lowest risk expectation of an investor is as rational as anyone' s hope to get the maximum benefit from any activity he or she is andertaking. But it is a fact that a person is exposed to psychological and sociological factors. In another words, some investors may accept low earnings with a low risk level while others may endure a higher risk level for higher earnings. When we take the financial markets as a formation in which millions of investors trade, the average earnings of all investors who trade in these markets. According to the Efficient Market Theory, it is impossible to have earnings higher than the earnings of the market portfolio in an efficient market But it was tried to be shown with the researches done in the late seventies that the portfolios formed based on some ratios, such as price - to - earnings ratios, size, market value - to - book value ratios etc., had higher performances than that of the market portfolio. Besides that it also has been argued that these effectshavent been seen in some studies. Because of this dilemma in the finance literature, the concept of anomaly stil remains as an unknown. In this study, it has been tried to investigate the existence of the price - to - earnings ratio and size effect ( market value ) anomalies in the IMKB for the 1995 - 2000 period. For this purpose, the Financial Markets in general and the Capital Markets in a little bit more detailed way have been studied in the first section. The Efficient Market Theory, Equilibrium Models and Financial Asset Risk Measurement have been studied in the second section. In the third section, anomaly in general terms, the probable causes of an anomaly, anomaly types, and the performance criteria have been mentioned and the price - to - earnings ratio and size anomalies have been tried to be investigated.