P-E Multiples and Changing Interest Rates

27 Pages Posted: 8 Oct 2008

See all articles by Dan Gode

Dan Gode

affiliation not provided to SSRN

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: July 2000

Abstract

How should one conceptualize price-earnings multiples (earnings capitalization factors) when interest rates change stochastically? The paper shows that while the multiplier for forthcoming earnings depends on current rates, the multiplier for current earnings depends on lagged rates. With these ideas in place, the paper generalizes Ohlson [1995] model with particular emphasis on the case when earnings provide sufficient accounting information for valuation. Results do not depend on the stochastic behavior of interest rates. The paper further derives the supporting modified information dynamic and shows how earnings persistence depends on both the current and the lagged rate.

Suggested Citation

Gode, Dan and Ohlson, James A., P-E Multiples and Changing Interest Rates (July 2000). NYU Working Paper No. DHANANJAY (DAN) K. GODE-02. Available at SSRN: https://ssrn.com/abstract=1280700

Dan Gode (Contact Author)

affiliation not provided to SSRN

No Address Available

James A. Ohlson

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon
China

Register to save articles to
your library

Register

Paper statistics

Downloads
124
rank
222,328
Abstract Views
797
PlumX Metrics