Price-earnings Ratio Growth Connotation

There is 18 years since Shanghai Stock Exchang have been setup in 1990. At December 31, 2007, the total market value of floating stock is 50 percent of GDP , the total market value is 120 percent of GDP. At present 2008, there is the adjust figure of 60 percent about the index of the stock market. The total market value will be 70 percent of GDP. The benchmark Shanghai Composite index fall from 6000 in 2007 to 2000 in 2008 . The ups and downs of the stock market offer new metiral datas for the reaserch of P/E ratio.At first, we reaserch connotation of P/E ratio, We conclude that the main factor influencing the P/E ratio is the earning growth ratio. According financial figures, we conclude that the per share growth ratio fuluent P/E ratio directly. According to Basu's reaserch method about investment performance and P/E ratio and perter's investment rule about the growth stock. We setup relationships among growth ratio,PEG,future investment performan. We test correlation between the growth ratio and P/E ratio. We test effect that we get excess earnings by PEG.The result revealed that stock price is the main factor influencing the market price-earnings ratio. The flow of market capital drive mainly Stock price. The correlation of P/E ration and the per share growth ratio is statistically nonsignificant. we divide into groups according to the growth ratio, we found that There is statistically significant between a higher earnings per share growth rate and a higher price earnings ratio. These steady and higher growth rate stocks can basically show higher growth rate corresponding higher P/E ratio. It is especially significant when the stock is directed additional issuance, but a single stock is evidently influenced by many uncertain factors. According choosing stock rules of PEG index, We choose some higher growth and Underestimated PE under percondion of the high growth ratio keeped steadily. The result of test revealed that PEG index can guide investment to get abnormal return when the stock market is rising , but PEG index isn't guide investment when the stock market is falling continually.