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Please use this identifier to cite or link to this item: http://hdl.handle.net/1860/1177

Title: The history and performance of concept stocks
Authors: Hsieh, Jim
Walkling, Ralph A.
Keywords: Concept Stocks;Glamour;Market To Sales;Price To Sales
Issue Date: 6-Mar-2006
Publisher: Elsevier Science B.V.
Citation: Journal Of Banking & Finance, 30(9): pp. 2433-2469. http://dx.doi.org/10.1016/j.jbankfin.2004.12.006
Abstract: This study investigates the performance of firms with extremely high levels of market to sales value (“concept stocks”). To many observers, these stocks appear overvalued. However, proponents argue that because of their unique characteristics, traditional pricing models fail to value these firms correctly. Ex post, the debate can be resolved through an analysis of the long term performance of concept stocks. En route to testing the implied overpricing hypothesis we document several important findings. First, the identity and characteristics of concept stocks have changed markedly over time. Although the obvious recent examples are internet and biotech stocks, concept stocks vary widely by industry over the past four decades. The industries containing the most popular concept stocks evolve from oil and gas extraction in the 60s and 70s, to computer and office equipment in the 80s, and to computer-related services in the 90s. Second, although concept stocks tend to be young, small, growth stocks in the 90s, they exhibit a wide range of characteristics throughout the sample period. Third, the relative pricing of concept stocks (compared to either a control sample or the entire population) has changed dramatically over time. The average concept stock sold for approximately three times sales in the late 60s and 70s, five times sales in the 80s and nearly 17 times sales in the 90s. Finally, we find evidence supporting the overpricing hypothesis. Concept stocks underperform significantly in the long run. This underperformance is more severe for Nasdaq firms and in the most recent two decades. The results are separate from glamour, IPO, industry, or contrarian effects and remain after an extensive sensitivity analysis.
URI: http://hdl.handle.net/1860/1177
Appears in Collections: Faculty Research and Publications (Finance)

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