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The P/E Multiple and Market Volatility

Alex Kane, Alan J. Marcus and Jaesun Noh
Financial Analysts Journal
Vol. 52, No. 4 (Jul. - Aug., 1996), pp. 16-24
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/4479930
Page Count: 9
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The P/E Multiple and Market Volatility
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Abstract

The market multiple is highly sensitive to volatility. These empirical results suggest 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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