A quantitative study of the P/E ratio on the Swedish market

Abstract: Title: A quantitative study of the P/E ratio on the Swedish marketSeminar date: June 4th, 2007 Course: Master thesis in Business and Finance and Economics, 10 Swedish Credits (15 ECTS) Authors: Filip Lundberg and Karl Johan Kulling Tutor: Hossein Asgharian Key words: P/E ratio, dividend yield, interest rate, risk, growth, debt to equity, market value, market to book, regression analysis and Swedish stock market Purpose: The purpose of this study is to find out which variables influence the P/E ratio on the Swedish stock market. It also aims to specify how a change in these variables affects the P/E ratio. Methodology: For this study we have chosen a quantitative approach and to divide the regression into two parts. In the first part we only included four macro variables and the second part containing all variables. The secondary data that we use is primarily based on international articles and book. Theoretical perspectives: The theoretical review includes theories about the P/E ratio and the variables that are used in our study. It also includes theories about the regression analysis. Empirical findings: In the empirical study we have conducted two regression analysis for every sector. The results are presented for each of the nine different sectors and finally the findings for the entire market are presented. These empirical results are presented together with the analysis, this has been done in order to facilitate the interpretation of the empirical findings. Conclusions: The conclusions that could be drawn from this study are that the P/E ratio for the nine different sectors has different forces that drive them. These effects are backed up with statistically proved coefficients and for the market five out of seven variables are proved to affect the P/E ratio.