Tables 5B–5D show results for the VAR analysis for P/E ratios and prices/yields. Since no cointegration
was found for other indexes, error correction was not required. For S&P BSE 500 when price is taken as
a dependent variable, the lagged coefficient of P/E (–3) is found to be negative and significant (at 5 per cent
significant level) indicating that increase in P/E leads to decrease in price for S&P BSE 500. The relation
between yield and lagged coefficient P/E (–4) is also negative and significant (at 5 per cent significant
level) indicating decrease in yield with the increase in P/E. Granger causality test indicates that the P/E
ratio Granger-causes price change for S&P BSE500. However, chi-square with yield as a dependent
series accepts the null hypothesis that P/E does not Granger-cause yield.
Table