Investigating the relationship between the forward P/E, Earning growth and risk

Subject Areas : Journal of Investment Knowledge

Seyad Ali Hosseini ¹ , Mahbobeh Bahrami ²

1 - Assistant Professor of Accounting, Al-Zahra University, (Corresponding Author) [e-mail]
2 - student of master in accounting , Al-Zahra University

Received: 2016-08-01 Accepted : 2016-10-23 Published : 2017-03-21

Keywords: forward P/E, trailing P/E, earning growth, Risk,

Abstract :

One of the most common tools and criteria decision is trailing Price to earning (P/E) ratio. The trailing P / E ratio is widely used by investors but most investors follow the trailing one ratio while trailing one ratio is lower and more volatile than the forward one ratio. Olson-Jentter(OJ) model can be used as a base model. The aim of this research is to investigate the relationship of forward P/E ratio with earning growth and risk. The research sample includes49 companies from those listed in Tehran Stock Exchange between the years from 1383 to 1393. Hypotheses of investigation are tested by regression analysis, integration data and using E-views software and Panel data model. The result of this study shows that forward P/E ratio is approved in short-term, but it is not approved in long term.