An Empirical Test of the Relative Valuation Model of Portfolio Selection

Abstract

The Relative Valuation Model may be a useful screening tool, especially during periods of low inflation and high productivity. The model is simple in structure and the data inputs are publicly available. Practitioners could program PCs to screen large databases of current company information (e.g., Value Screen) and select a more manageable sample on which to perform further fundamental analyses. Moreover, the results indicate that, during bullish markets, more frequent rebalancing-e.g., quarterly or semiannual rather than annual-results in higher excess returns.