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Evolution of earnings-to-price ratios: International evidence

  • Eun, Cheol S.
  • Lee, Jinsoo
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    In this paper, we examine the pattern of historical evolution of international earnings-to-price ratios for a sample of 17 developed markets over the period 1980-2008. Using a measure of distance between earnings-to-price ratios of international stock markets, we find that earnings-to-price ratios of 17 markets have significantly converged toward each other during the sample period. Specifically, the average distance for our sample markets has decreased by about 70% during this period. Our analysis indicates that the convergence in earnings-to-price ratios reflects increasing capital market integration rather than more alignment in industrial structure among these markets.

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    File URL: http://www.sciencedirect.com/science/article/B6W4F-50F8BVV-1/2/c3a66e1eba0191ff11b34aff9cd521f9
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    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 21 (2010)
    Issue (Month): 2 ()
    Pages: 125-137

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    Handle: RePEc:eee:glofin:v:21:y:2010:i:2:p:125-137
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620162

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    1. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
    2. French, K.R. & Poterba, J.M., 1990. "Are Japanese Stock Prices Too High?," Working papers 547, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Geert Bekaert & Campbell R. Harvey & Christian Lundblad & Stephan Siegel, 2007. "Global Growth Opportunities and Market Integration," Journal of Finance, American Finance Association, vol. 62(3), pages 1081-1137, 06.
    4. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    5. Guenther, David A. & Young, Danqing, 2000. "The association between financial accounting measures and real economic activity: a multinational study," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 53-72, February.
    6. Pukthuanthong, Kuntara & Roll, Richard, 2009. "Global market integration: An alternative measure and its application," Journal of Financial Economics, Elsevier, vol. 94(2), pages 214-232, November.
    7. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    8. Geert Bekaert & Campbell R. Harvey & Christian T. Lundblad & Stephan Siegel, 0. "What Segments Equity Markets?," Review of Financial Studies, Society for Financial Studies, vol. 24(12), pages 3841-3890.
    9. Carrieri, Francesca & Errunza, Vihang & Sarkissian, Sergei, 2006. "The Dynamics of Geographic versus Sectoral Diversification: Is There a Link to the Real Economy?," Working Papers 06-4, University of Pennsylvania, Wharton School, Weiss Center.
    10. Eun, Cheol S. & Lee, Jinsoo, 2010. "Mean-variance convergence around the world," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 856-870, April.
    11. Mittoo, Usha R, 1992. " Additional Evidence on Integration in the Canadian Stock Market," Journal of Finance, American Finance Association, vol. 47(5), pages 2035-54, December.
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