Stock Market Values And P/E Ratios As Predictors Of New York Stock Exchange Delistings

Abstract

The price-to-earnings ratio effect and the small firm effect literature suggests that stock markets are inefficient, asset pricing models are misspecified, or both.  Consequently, it appears that one can earn positive, abnormal, risk-adjusted returns by investing in select stocks based on P/E ratio, firm size, or other anomalous behavior criteria.  One potential explanation for the abnormal return observations is survivor bias in tests of asset pricing models.  This research reports the results of an empirical investigation of delisting as a possible contributor to anomalous behaviors.  The evidence indicates that delisting fails to contribute to the P/E effect; however, firm size is associated with delisting when survivor bias is controlled.