Episode Details

In this session, we begin by looking at market timing approaches that are built on the presumption that there is a normal level for a financial market and that prices revert back to this normal level. In the context of stocks, this usually takes the form of a normal PE, computed using either current or normalized earnings, with the assumption that if stocks collectively are trading at a PE higher (lower) than the normal PE, they are over (under) priced. With interest rates, the norm is defined as a range of interest rates based upon history and an assumption that interest rates will revert back to this range over time. In the second part of the session, we examine whether you can use macro economic data on interest rates and real growth to forecast future stock prices and find little basis for trading profits.
Playlist for class (Intro + 42 sessions): https://youtube.com/playlist?list=PLUkh9m2BorqnZGADa8cTzeJblmrZY_SqP&si=zI2pk17pJeld4nWR
Slides: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilslides25/session32.pdf
Post-class test: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session32test.pdf
Post-class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/invphilcertificate/postclass/session32soln.pdf

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