The Study On The Valuation And Affecting Factors Of P/E Ratio In China's Security Market

On the basis of the current P/E ratio in china stock market, this paper studies the price-earnings ratio valuation and affecting factors, through the theoretical analysis and empirical research, and it is concluded that:The P/E ratio exists in systematic differences. The representation of Market P/E as a whole has significant industry difference, which showed as the inconsistence of industry P/E valuation. The market valuation holds a certain trend, and the trend continues under expectation. Market valuation has significant explanatory power on the industry valuation. On this basis mentioned above, this paper constructs the P/E valuation model, which combines the initial P/E and industry beta to evaluate the reasonability of P/E model. The causes of P/E valuation indicate that systematic difference in P/E ratio is due to combination of initial pricing and industry beta.In the research of factors affecting P/E ratio, this paper explain the changes of P/E ratio from the perspective of economic growth, price and yield factor, the interest rate factor:(1) It is proved that our stock market P/E ratio valuation is mainly affected by the impact of current economic growth, which is reflected on the positive relation between the current P/E ratio and economic growth. The ability of P/E ratio response to economic growth is connected with the expected period, the longer the time span is, the weaker the quality of response to the information will become, which show that economic growth influence the changing of the P/E. (2) The P/E ratio study of stock price and earnings shows that China's stock market P/E ratio features mean-reversion. The movements in the P/E ratio back toward the average occur mainly through changes in stock prices other than earnings adjustments, which show that price affects the changing of the P/E. (3) In the study of relation of interest and P/E ratio, it is concluded that different term spread have consistent explanatory power on the market performance in the same investment period; given the spread term structure, spread has stronger explanatory power on longer investment than shorter investment horizon.