Apr 24, 2009
Q&A
Q&A: Challenging S&P 500 Earnings 
Recently, Professor Jeremy Siegel has challenged the method of calculating earnings for the S&P 500. He believes the calculation should be market weighted, as is the index. Standards and Poor's disagrees. In your view, who is correct?

EFF/KRF: In our research we calculate the E/P ratio for a portfolio just as S&P does, dividing the aggregate earnings of the firms in the portfolio by the total market equity. It is easy to see the logic if you imagine merging all of the firms into one giant conglomerate. The new firm's earnings and market equity are just the sum of the individual firms' earnings and market equity.

 
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ABOUT FAMA AND FRENCH
Eugene F. Fama
The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business
Kenneth R. French
The Roth Family Distinguished Professor of Finance at the Tuck School of Business at Dartmouth College
This information is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Dimensional Fund Advisors and does not represent a recommendation of any particular security, strategy or investment product. Dimensional Fund Advisors is an investment advisor registered with the Securities and Exchange Commission. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Eugene Fama and Ken French are members of the Board of Directors of the general partner of, and provide consulting services to Dimensional Fund Advisors LP.