Forecasting Equity Market Returns Using Historical Price Earnings Multiples

XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM)

12 Pages Posted: 24 Apr 2013 Last revised: 30 Apr 2013

See all articles by Arpan Ranka

Arpan Ranka

UnionKBC Asset Management Company Pvt. Ltd

Date Written: December 21, 2012

Abstract

This paper aims at developing a framework based on a price earnings multiple model which would help investors forecast multi-year forward equity market returns. The author would test the following three parameters to determine which combination best fits the historical market performance and thus can be expected to provide a reliable forecast of future market returns:

• Earnings variants (Shiller, Peak, Forward or Trailing)

• Time period for projection (10 years, 7 years or 5 years)

• Data interval (Daily, Weekly or Monthly)

In case and after a suitable combination is found which can be relied upon to forecast equity market returns, a range of possible returns would be determined based on the price earnings multiples observed during bull and bear markets. The range would likely provide an investor with an indication of best and worst case returns along with the most likely expected equity market return.

Keywords: Equity Market Returns

Suggested Citation

Ranka, Arpan, Forecasting Equity Market Returns Using Historical Price Earnings Multiples (December 21, 2012). XI Capital Markets Conference, 21-22 December 2012, Indian Institute of Capital Markets (UTIICM) . Available at SSRN: https://ssrn.com/abstract=2255323 or http://dx.doi.org/10.2139/ssrn.2255323

Arpan Ranka (Contact Author)

UnionKBC Asset Management Company Pvt. Ltd

7th Floor, Piramal Tower, Peninsula Corporate Park
Ganpatrao Kadam Marg, 400 013
India

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