Price-to earnings (P/E) ratio is one of the major ratios considered by investors to be analysed and to help them in the decision-making process. Analysing this ratio in the global financial market is frivolous without considering macroeconomic variables such as inflation rate, risk, interest rate, etc. and it should be conducted in a comprehensive analytical framework. The ongoing study aims to focus on risk and P/E ratio and to indicate if there is a relationship between the firm's risk and P/E ratio. Therefore, the research population consists of 41 firms listed in Tehran Stock Exchange (TSE) during 2002–2011 and Linear Regression Model is also employed to analyse the research hypotheses. Finally, Student's t-test is used to verify the null-hypothesis at the 0.05 level of significance and consequently, a correlation was found between variables and research hypotheses are accepted.
Risk, stock return, systematic risk index, price-to-earnings (P/E) ratio
