an awareness of the problems of core earnings adjustments in
a particular company. Given that the majority of trading-dol-
lar volume takes place among institutional investors (where
we also assume that a sophisticated level of analysis takes
place), it is reasonable to assume that this awareness does, in-
deed, affect price volatility. At the very least, it is an idea worth
keeping in mind as we try to understand the relationship be-
tween market price trends and core earnings adjustments.
Balancing PE and Market Perceptions:
Looking to the Future
In using PE ratio as a primary test, we can also learn a lot about
how the market generally perceives a stock’ ...