The influence of COVID-19 on financial market valuation multiples in the United States and Europe

Abstract

This thesis examines the influence of macroeconomic variables on firms’ Price-to-Earnings (P/E) ratios in the United States and the Euro Area over the period 2018–2024. Using monthly panel data for 30 large firms in each region, the study investigates the effects of interest rates, inflation, GDP growth, firm size, and the COVID-19 period on equity valuation. Fixed Effects and Random Effects models are estimated, with robust standard errors applied to address econometric issues. The results reveal significant differences between the two regions. In the United States, inflation negatively affects P/E ratios, while GDP growth has a positive effect. In the Euro Area, higher interest rates are associated with lower P/E ratios, while the COVID-19 period is associated with higher P/E ratios. Firm size is not significant in either region. Overall, the findings show that macroeconomic conditions influence equity valuation differently across the two markets.