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P/E Movements: Some New Results

The P/E ratio is often used as a metric to compare individual stocks and the market as 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&P500 Index). We use a limited number of variables that can be justified on theoretical grounds, and include variables that measure investor beliefs and changes in tax rates. We show that tax rates and investor optimism are important factors that affect the P/E ratio.

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	Dudney, Donna Associate Professor of Finance Expertise: Financial Institutions Financial Markets & Investing Managerial Economics Finance CBA 243 P.O. Box 880490 University of Nebraska-Lincoln Lincoln, NE 68588-0490, USA Phone: (402) 472-5695 Fax: (402) 472-5140 ddudney@unl.edu	Dudney, Donna	Finance
	Zorn, Thomas S Emeritus Expertise: Corporate Finance Financial Markets & Investing Real Estate Managerial Economics Interest Rates & Risk Management Finance CBA 238 P.O. Box 880490 University of Nebraska-Lincoln Lincoln, NE 68588-0490, USA Phone: (402) 472-6049 Fax: (402) 472-5140 tzorn1@unl.edu	Zorn, Thomas S	Finance