EconPapers    
Economics at your fingertips  
 

Cyclically Adjusted PE ratio (CAPE) and Stock Market Characteristics in India

Joshy Jacob and K.p Pradeep

IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: We estimate the Cyclically Adjusted PE ratio (CAPE) for equity indices in the Indian market. We find the average CAPE ratio of the Indian market is lower than that of the US. Judging the market valuation level based on a long-term moving average of CAPE, we find that the CAPE has remained above the average since 2014. Prominent episodes where CAPE exceeds its average include the period before the 2008 Global Financial Crisis and the post-COVID-19 period. We find that a higher CAPE is associated with lower future returns for holding periods varying from one year to ten years, indicating the negative association between expected returns and CAPE. We also find that a higher CAPE is associated with a greater demand for IPOs by investors and more optimistic earnings forecasts by analysts. Net fundraising through equity significantly increases during periods of high CAPE suggesting rational market timing by firms.

Date: 2022-09-29
New Economics Papers: this item is included in nep-fmk
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.iima.ac.in/sites/default/files/rnpfiles/8645633291-2022-09-03.pdf English Version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:14684

Access Statistics for this paper

More papers in IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-06-20
Handle: RePEc:iim:iimawp:14684