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Q&A: Challenging S&P 500 Earnings

Tue, 28 Nov 2017 10:19:19 GMT

Recently, Professor Jeremy Siegel has challenged the method of calculating earnings for the S&P 500. He believes the calculation should be market weighted, as is the index. Standards and Poor's disagrees. In your view, who is correct? EFF/KRF: In our research we calculate the E/P ratio for a portfolio just as S&P does, dividing the aggregate earnings of the firms in the portfolio by the total market equity. It is easy to see the logic if you imagine merging all of the firms into one giant conglomerate. The new firm's earnings and market equity are just the sum of the individual firms' earnings and market equity.