| Author: | Kane, A. Marcus, A. Noh, J. |
| Title: | The P/E multiple and market volatility |
| Journal: | Financial Analysts' Journal
1996 : JUL-AUG, VOL. 52:4, p. 16-24 |
| Index terms: | FINANCE PRICE EARNINGS RATIOS VALUATION |
| Language: | eng |
| Abstract: | The price-earnings ratio of the market index is highly sensitive to the expected volatility of market returns. hence, any assessment of market valuation that ignores the impact of volatility on the equilibrium P/E is inherently perilous. These empirical results suggests that a permanent 1 percentage point increase in market volatility can, over time, reduce the market multiple by 1.8. Hence, any assessment of market valuation that ignores the impact of volatility on the equilibrium P/E is inherently perilous. |
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