Improving P/E Estimation Accuracy

Abstract

I show that a more accurate price/earnings (P/E) estimation can be obtained by utilizing an improved measure for P/E. This improved P/E measurement is calculated as a value-weighted average of market securities. A regression using treasury yield data as a proxy for P/E yields a model which is more accurate (i.e., statistically significant) than previous models. Furthermore, this accuracy is obtained without employing P/E smoothing techniques or analyst estimates as do previous models.