Evaluation of the returns of portfolios formed according to market performance ratios: An application on BIST 100 index firms

When making portfolio investments in the stock market, determining the stocks to be included in the portfolio is of great importance. One of the criteria that can be taken into consideration when choosing the stock to be included in the portfolio is the undervalued- overvalued status of the stock. Market performance ratios are important tools used to detect this situation. Among these rates, especially the price/earnings ratio (P/E) and market to book ratio (M/B) are very important for investors. The aim of this study is to form various portfolios by considering the market performance rates of the companies that are traded in Borsa İstanbul and included in the BİST 100 index and to reveal the effects of market performance rates on portfolio returns by calculating the periodic return rates of these portfolios. The results obtained in this study showed that if stocks that are undervalued both in terms of price/earnings ratio and market to book ratio are detected in the formed portfolios, very high returns can be obtained, especially in the long term.