The impacts of large trades by trader types on intraday futures prices: Evidence from the Taiwan Futures Exchange |
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Authors: | Alan G Huang Tony S Wirjanto |
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Institution: | aSchool of Accounting and Finance, University of Waterloo, Waterloo, Canada ON N2L 3G1;bSchool of Accounting and Finance, and Department of Statistics and Actuarial Science, University of Waterloo, Waterloo, Canada ON N2L 3G1 |
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Abstract: | We find that China's P/E ratio is comparable to that of the U.S. S&P 1500 index, a broad based index covering large, middle, and small capitalization firms. We provide an explanation as to why China's seemingly low P/E ratio is not surprising in light of the economic growth that it has experienced. Specifically, we show that (i) the P/E ratio is negatively associated with earnings volatility in both the Chinese and U.S. stock markets with an economically significant magnitude; and (ii) historical earnings volatility is considerably higher in China than in the U.S. Higher earnings volatility in China offsets higher growth prospect in setting the P/E ratio, making its P/E ratio much closer to what is observed empirically than otherwise implied by its growth rate. |
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Keywords: | JEL classification: G15 G13 G32 |
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