Quarterly Bulletin
Share Prices Articles
| Winter 2002 | Equity
valuation measures: what can they tell us? 
(226k)(by Anne Vila Wetherilt and Olaf Weeken of the Bank's Monetary Instruments and Markets Division). This article examines the usefulness of summary statistics, such as the price-earnings ratio and the dividend yield, that are commonly used in valuing equity markets. But these measures are very sensitive to assumptions made about the (unobservable) equity risk premium, as well as to the precise definitions of earnings or dividends used in the calculations. This limits their usefulness as summary statistics of equity valuations. Profit expectations and investment
(64k)(by Seamus Mac Gorain of the Bank's Monetary Instruments and Markets Division and Jamie Thompson of the Bank's Structural Economic Analysis Division). This article examines the relationship between expectations of future profits and companies' physical investment. Theory suggests that increased profit expectations should raise share prices as well as investment. But this correlation between investment and share prices may be rather weak if investors' opinions of companies' prospects differ from those of the companies' managers. Using a simple aggregate investment equation, the article illustrates that measures of profit expectations based on current profits and analysts' earnings forecasts appear to be more informative for investment than stock prices themselves. This result is consistent with recent research at the Bank using company data. |
| Summer 2002 | Asset
prices and inflation
(108k) (by Roger Clews of the Bank's Monetary Instruments and Markets Division). This article is one in a series on the UK monetary policy process. It discusses some of the interconnections between inflation, monetary policy and asset prices. The Monetary Policy Committee is extensively briefed on asset market developments, along with other developments in the economy, before it makes its policy decisions. |
| Spring 2001 | The
information in UK company profit warnings This article examines the information content of trading statements issued by UK companies between 1994 and 2000. The article summarises work undertaken at the Bank aimed at establishing: whether these statements contain genuine information; which types of statement are most informative; and whether the incidence of the statements can tell us anything about the state of the UK economy. It appears that statements reporting an adverse outlook for the future prospects of the firm ('profit warnings') do contain market-relevant information, causing financial agents to revise expectations about future profitability dramatically. Statements reporting a positive outlook for future profits tend to have a much smaller (though still significant) impact upon prices—implying that the information content of these statements is lower. There is also some weak and preliminary evidence that the incidence of negative trading statements issued by FTSE 350 companies may be a leading indicator of UK economic activity. |
