Historically,P/E ratios have tended to be _________.
A)higher when inflation has been high
B)lower when inflation has been high
C)uncorrelated with inflation rates but correlated with other macroeconomic variables
D)uncorrelated with any macroeconomic variables including inflation rates
E)none of the above

Question

Quizplus · Accepted Answer

Studies have shown that P/E ratios have tended to be lower when inflation has been high. This is because high inflation erodes the value of future earnings and reduces investor confidence, leading to lower stock prices and hence lower P/E ratios.

Historically,P/E Ratios Have Tended to Be _________