Fundamental determinants of the Australian price–earnings multiple

Title: Fundamental determinants of the Australian price–earnings multiple
Creator: Shamsuddin, Abul F. M.; Hillier, John R.
Relation: Pacific-Basin Finance Journal Vol. 12, p. 565-576
Publisher Link: http://dx.doi.org/10.1016/j.pacfin.2004.02.001
Publisher: Elsevier BV, North Holland
Resource Type: journal article
Date: 2004
Description: This paper is the first attempt to investigate the factors fundamental to the setting of the price–earnings (P–E) multiple for the Australian stock market. The quarterly P–E ratio for the ASX 200 index is used as a measure of the market wide P–E multiple. It is demonstrated that a large portion of the variation in the P–E multiple can be explained by the dividend payout ratio, interest rates and GDP growth rates. In addition, consumers' confidence—a leading indicator of future growth opportunities, the Australian–US exchange rate—a key determinant of the competitiveness of domestic companies, and volatility of domestic market returns—a risk factor, have incremental explanatory power. The results are compatible with market rationality and they suggest that unlike the US, the actual time path of the Australian P–E multiple is primarily driven by the indicated fundamentals.
Subject: price–earnings ratio; dividend discount model; ASX 200 index; prediction accuracy
Identifier: uon:1929
Identifier: http://hdl.handle.net/1959.13/27703
Identifier: ISSN:0927-538X
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