Post #171 by PickTrader on the Index Investing board

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Why do indexes sometimes use this method of calculating PE using harmonic averages?

https://en.wikipedia.org/wiki/Harmonic_mean

It is the most appropriate average for ratios and rates such as speeds, and is normally only used for positive arguments.
The harmonic mean is the reciprocal of the arithmetic mean of the reciprocals of the numbers

So it's a way to average the PEs appropriately by averaging their reciprocals, i.e. their Earnings Yield. That way everything stays in "PE space" so it makes conceptual sense to us.

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