From P/E to the Potential Payback Period (PPP): Demonstrating the Explanatory and Predictive Power of Growth- and Risk-Adjusted Valuation Across Global Stock Markets (2025)

This paper provides empirical evidence that the Potential Payback Period (PPP) and its derivative, the Stock Internal Rate of Return (SIRR), possess superior explanatory and predictive power over the traditional price-to-earnings (P/E) ratio when applied to entire national equity markets.By adjusting for earnings growth (g) and discount rate (r), the PPP converts the P/E into a dynamic, meaningful, and comparable metric of valuation. Using a cross-sectional dataset of major global stock indices as of February 7, 2025, and subsequent market performance through October 3, 2025, this study shows that the PPP correctly anticipated the relative outperformance of markets characterized by lower PPP values (shorter payback periods).The results reaffirm that the PPP generalizes the P/E ratio, reintroducing time, growth, and risk into valuation, and providing a coherent, predictive lens for global asset allocation.