Indian Stock Prices and Earnings: Correlation or Refexivity?


A recent Morgan Stanley report makes this interesting point - shares prices and corporate earnings have a reflexive relationship. That share prices are correlated to earnings is old stuff, haven't someone quite state the reflexive bit.

Here's what it says (something about bottom up and top down reflexivity)..

The high share of financial earnings in pre-tax earnings creates the bottom-up reflexivity between earnings and share prices adding to the top down reflexivity emanating from foreign flows.

Whlie reflexive relationship does make sense, I can't see how the chart here shows anything more than a correlation.



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