RELATIONSHIP BETWEEN THE VALUE OF THE P/E RATIO, THE RATE OF INFLATION AND THE MARKET RETURN OF THE BULGARIAN STOCK EXCHANGE MARKET
Published: 22 Aug 2017
Abstract: The purpose of the present report is to show to what extent the Price/Earnings (from now on P/E) ratio of the public companies in Bulgaria is related to the so-called Rule of 20 regarding the relationship between the value of the ratio and the inflation rate in the country, as well as the future market return, or in other words – is it possible to use the P/E ratio, by means of the Rule of 20, as an indicator for future inflation rates and market presentation in the short run. The P/E ratio is a basic measurement, used by the investors for analyzing the stock exchange markets. Its main function is to give an answer to the question whether the shares of the public companies are underestimated or overestimated.
Keywords: p/e ratio, the rule of 20, market return, required rate of return, rate of inflation
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