English, Article edition: P|E changes: some new results Thomas Zorn; Donna Dudney; Benjamas Jirasakuldech

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Bookmark: http://trove.nla.gov.au/version/76305
Physical Description
  • article
Language
  • English

Edition details

Title
  • P|E changes: some new results
Author
  • Thomas Zorn
  • Donna Dudney
  • Benjamas Jirasakuldech
Physical Description
  • article
Notes
  • The P|E ratio is often used as a metric to compare individual stocks and the market as a whole relative to historical valuations. We examine the factors that affect changes in the inverse of the P|E ratio (E|P) over time in the broad market (S&​P 500 Index). Our model includes variables that measure investor beliefs and changes in tax rates and shows that these variables are important factors affecting the P|E ratio. We extend prior work by correcting for the presence of a long-run relation between variables included in the model. As frequently conjectured, changes in the P|E ratio have predictive power. Our model explains a large portion of the variation in E|P and accurately predicts the future direction of E|P, particularly when predicted changes in E|P are large or provide a consistent signal over more than one quarter. Copyright © 2008 John Wiley &​ Sons, Ltd.
  • RePEc:jof:jforec:v:28:y:2009:i:4:p:358-370
Language
  • English
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