Stock Market Assessment: Invest Now or Later

Abstract

Investors face a million-dollar question on a daily basis, is it a right time to invest in stock market, or is the stock market under, over or fairly valued? This article answers this much-awaited question by proposing the stock market assessment indicator. It uses market level fundamental ratios like Price to Earnings (PE), Price to Book (PB), and Dividend Yield (DY) ratios to derive PE, PB, and DY scores based on their historical mean and standard deviation values. This article also derives Market Assessment Score (MAS) as an equal-weighted average of PE, PB, and DY scores. The values of all scores ranges from 0 to 100, based on that, the article classifies the current market as under-, over- or fairly-valued. The findings of this article have implications for the fund manager, portfolio manager and, at large, all investors while making a new investment or rebalancing an existing portfolio.