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Comment by bostonpete | Hacker News Reader

Do you know where this graph appeared on Bloomberg? According to the Shanghai Stock Exchange website (http://english.sse.com.cn/), they're Average P/E Ratio is currently 15.62...

Edit: Found it myself: http://www.bloomberg.com/news/articles/2015-06-16/real-cost-...

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The Bloomberg graphs are Median P/E, you are reading on the SSE website about Average P/E. Perhaps that explains the discrepancy.

Wait, the median P/E is three times higher than the average? That does not sound right. Because the P/E cannot go below zero, the ability of a small number of stocks to throw the average off is limited.. In fact I can't think of any way for the average to be more than twice the median, even if half the stocks (minus one) had a P/E of zero. How would that work, mathematically?

Negative earnings, maybe? Usually P/E ratios for those companies are reported as N/A, though.

Good point! But that makes me think that maybe taking the average of a bunch of P/E ratios is mathematically stupid to begin with. I mean, you could have one with earnings of .00000001 which would make the P/E ratio enormous, or with earnings of -.0000001 which would make the P/E ration enormously negative. Or you could have earnings of exactly zero which would give you a NaN. So maybe this is just is an indication that the median P/E is a much more meaningful quantity than the average. Maybe taking the average of a bunch of ratios is meaningless, in general. Or maybe they are adding up total price of all stocks on the exchange / total earnings of all stocks on the exchange. In that case, you could get the result that the "mean" was much lower than the average, if there were a small number of stocks that were losing bucketloads of money.

The Bloomberg chart states it is talking about projected earnings over the next 12 months. Would these projections be what the individual companies report, or would they be forecasts by Bloomberg analysts?

The CSE page doesn't define how they compute average P/E, in principle they could be using some historical measure of earnings.

Could that reported average be cap-weighted? It's possible that the very biggest companies have reasonable P/E ratios, but there are a large number of small stocks with crazy prices.

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