Returns to E/P Strategies, Higgledy-Piggledy Growth, Analysts' Forecast Errors, and Omitted Risk Factors

High E/P (low P/E) investing has been a popular investment strategy for many years. A n u mber of academic studies document that high E/P strategies have historically generated, on average, above-normal returns. Some examples are Basu [1983], Goodman and Peavey [1986], and Jaffe, Keim, and Westerfield [l989]. Fama and French [1992] also find positive abnormal returns associated with high E/P stocks, but they find an even stronger relationship between book value t o p rice ratios (B/P) and abnormal returns.