Using the Cyclically Adjusted Price-Earnings multiple (CAPE) model to evaluate financial markets: Analytical study In the Iraq Stock Exchange for the period (2013 – 2022)

Abstract

The current study examines the actual role that the Price-to-Earnings Multiples Model can play in achieving an objective evaluation of financial markets. This model is an important topic for both investors and companies alike, as it relates to a significant financial ratio for both parties, namely, the price-to-earnings ratio. Given that this ratio has faced numerous criticisms for not considering inflation cases, the current study aims to uncover what the model can offer in addition to the advantages of the model in evaluating financial markets.

The study measured its variables using several financial indicators and statistical equations, the most important of which are: (Price-to-Earnings Multiples as a ratio of inflation regarding the independent variable, regarding financial markets, three financial indicators were relied upon: Price-Weighted Index, Value-Weighted Index, and Equal-Weighted Index). The study was applied to a community consisting of companies listed on the Iraq Stock Exchange, while the sample included (30) companies distributed across all market sectors, representing best capital companies according to the industrial and Dow Jones in line with the general market index. The study's duration extended over the years (2022 - 2013).

The study reached several important conclusions, one of the most important being the significant disparity in the prices of stocks traded in the Iraqi financial market, as they are characterized by significant exaggeration in their values, as they are priced higher than their real value. The results also indicated the inefficiency of the Iraqi securities market due to unjustified price disparities, which results in errors in pricing stocks for companies listed in the market. The study recommended the need to reduce errors and problems resulting from pricing traded stocks, as this would positively impact the efficiency of the financial market. It emphasized the need for companies listed in the market to enhance the disclosure of financial and operational information regularly and accurately.