Molodovsky effect is: a) P/Es of cyclical firms are higher than their own historical averages during downturns b) P/Es of cyclical firms are lower than their own historical averages during downturns c) P/Es of cyclical firms are higher than historical averages for all firms during downturns d) a cocktail I had last night Extra points if you can tell me which sub-section where you read this (without using the e-book search feature).
during a period of low - earning is low. So P/E is high during a high period - earnings are high - so P/E is low. so the P/E would be higher than historical average during downturn. a) If I needed to know which section - I would have to consume that same cocktail you had last night… (for the onelasttime)… 
Molodovsky Effect is that P/E is high at the bottom of a business cycles, driven by lower EPS and lower at the top of a business cycle due to unsustainably high EPS, so a) which makes more sense in this context than c) (to me).
definately a)
I agree on A. P/E of cyclical firms is high at the bottom of the cycle. Earnings are low but prices are high in expectations of rising earnings (due to cyclicality). I believe it’s in the “economic” section of the CFAI, when it talks about all asset classes, this is in regards to equity. I don’t have the text with me so I don’t know the pages.
clearly a. cpk explained it really well.
good one.