Modeling The Stock Market by Paul T. Holliday
ARTICLE SYNOPSIS ...Modeling The Stock Market
by Paul T. Holliday
The price/earnings ratio works perfectly well-- for stocks. But, Paul Holliday points out, it doesn't work
for stock indices such as the DJIA or the Standard & Poor's 500, where the effective interest rate works
much better. To prove it, he's come up with a market model based on the theory that price is in
proportion to earnings divided by interest rate and proceeds to demonstrate its use.
The price/earnings ratio has been highly regarded as an indicator of whether the market is over- or
underpriced. But closer analysis reveals that for stock indi...