Publication Date


Document Type


First Advisor

Casebier, Eleanor||Bishop, George W. (George Wesley), 1910-

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Finance


Dow Jones & Co; Stock exchanges--United States


The price-earnings ratio has served as an investment analysis tool for many decades for appraising stock prices in relation to per share earnings. The primary objective of the present study was to determine whether the ratio could be used for forecasting upward or downward movements of stock prices. Specifically, the research was concerned with ascertaining whether statistically significant shifts in price-earnings ratios of all stocks included in the Dow-Jones Industrial Average preceded upward or downward price movements in the Dow-Jones Industrial Average during the bull market, January, 1955 to June, 1965. A secondary objective of the study was concerned with surveying some of the recent and more significant works on price-earnings ratios. The related studies and literature summarized in the thesis provide a historical, analytical description of price-earnings ratio behavior 1671-1964. One of the studies surveyed, which analyzed shifts in price-earnings ratios on a yearly basis in relation to stock prices, had a major influence on the design of the present study. Monthly closing stock prices and quarterly per share earnings data for stocks included in the index, and monthly closing index quotations were collected. Recent price-earnings ratios were calculated and classified in frequency and emulative frequency distributions, distributive percentages and medians were computed, and resulting data were presented in tables and figures. The tables and figures were analyzed; trend and irregular movements were removed from distribution classes and the industrial average isolating seasonal and cyclical movements; lead-lag and synchronous correlations were computed correlating selected adjusted series and the adjusted index; and synchronous correlations were calculated for selected unadjusted classes and the unadjusted index. The majority of the computations were handled by computer programs written in FORTRAN for the 1620 computer, Model 2. An analysis of the tables, figures, and correlations indicated that there was a shift in price-earnings ratios from lower to higher multiples during the period. Shifts in the ratios appeared to be of greater magnitude in previous years, 1955 to 1962, than in recent years, 1963 to June, 1965. It was also found that several frequency classes of ratios ware inversely related to the industrial average, and that unadjusted series had a higher degree of correlation to the Industrial average, unadjusted, than adjusted aeries and the adjusted index. Finally, it was found that statistically significant shifts in price-earnings ratios preceded the Dow-Jones industrial average, during the period, but that the relationship was not strong enough for forecasting purposes.


Includes bibliographical references.||Includes illustrations.


xii, 195 pages




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