PRICE-EARNING(P/E)RATIOS OF BROAD CATEGORIES OF U.S. STOCKS AND 3-MONTH T-BILL RATE: EVIDENCE FROM COINTEGRATION ANALYSES
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This paper explores the dynamic relationships between PIE ratios and three-month T-bill rates for broad categories of US stocks within the cointegration framework by employing quarterly data from 1953.1 to 1998.IV. The ADF unit root test results show that PIE ratios, stock prices and earnings as well as 3-month T-bill rates are nonstationary in levels both with and without trends at 5 percent level of significance. The ADF test results for cointegration reveal that only the PIE ratios of transportation stqcks and 3-month T-bill rates have no long-run equilibrium relationship at 1 percent and higher levels of significance. The evidence from the error-correction models is mixed with regard to the directions of causality between PIE ratios and broad categories of stock price
Abstract
This paper explores the dynamic relationships between PIE ratios and three-month T-bill rates for broad categories of US stocks within the cointegration framework by employing quarterly data from 1953.1 to 1998.IV. The ADF unit root test results show that PIE ratios, stock prices and earnings as well as 3-month T-bill rates are nonstationary in levels both with and without trends at 5 percent level of significance. The ADF test results for cointegration reveal that only the PIE ratios of transportation stqcks and 3-month T-bill rates have no long-run equilibrium relationship at 1 percent and higher levels of significance. The evidence from the error-correction models is mixed with regard to the directions of causality between PIE ratios and broad categories of stock price