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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
You can always find the topics here!Topics: Net income, Economic inflation, Prices, Standard deviation, Risk aversion, Investment risk, Inflation rates, Market prices, Risk premiums, Dividends
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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.
Financial Analysts Journal © 1996 CFA Institute