Analysis of the cyclically adjusted price-earnings index in the Latin American Integrated Market stock markets, 2011-2019
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Institución Unversitaria Politécnico Grancolombiano
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This research examines the validity of the cyclically adjusted price-earnings indicator (CAPE) in Latin American Integrated Market (MILA) countries' stocks, identifying stock market overvaluation or undervaluation 2011 - 2019. A synthetic index was created with ten stocks for each country with the highest presence 2001 - 2010 and with a correlation higher than 97% with its stock market. The representativeness of the selected stocks was verified by calculating the correlation coefficient with respect to the reference index of each market. Once the assets were selected, the PER and CAPE of each was calculated for 2011-2019. Then, using weights, the P/E and CAPE were constructed by identifying undervaluation or overvaluation. The results indicate that these markets tend to remain overvalued, with Mexico being the most overvalued, while Peru is undervalued. Additionally, when comparing the CAPE with the returns of each market, the only one with consistency was the Peruvian market.
The subjectivity with which these markets are managed leads to making erroneous decisions when investing or operating in the stock market, hence the importance of using this type of indicators that reduce the level of uncertainty and therefore the importance of this research by contributing to the literature, practical application and usefulness of this type of financial instruments.
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Equities, equity pricing, price earnings, financial integration markets