H1: By applying a sorting method on the Swedish stock market where stocks are selected based on their price-to-earnings and market-to-book ratios, an investor can generate returns in excess of market index returns without increasing the level of idiosyncratic and systematic risks.
Further, given the success of value investors such as Warren Buffet and Benjamin Graham that apply fundamental analysis when investing in stocks, there is no doubt that the value investing approach to investing has been successful historically. Since Greenwald’s valuation model is based on the value investing approach as taught by Benjamin Graham, our second hypothesis is the following:
H2: By applying a scoring system based on Greenwald’s valuation method on the stocks selected based on their price-to-earnings and market-to-book ratios, an investor can generate returns in excess of market index returns, without increasing the level of idiosyncratic and systematic risks, which cannot be achieved by sorting on price-to-earnings and market-to-book ratios alone.