Journal of Financial Economics Vol. 74 No. 2 2004
Predicting returns with financial ratios
Abstract
This article studies whether financial ratios like dividend yield can predict aggregate stock returns. Predictive regressions are subject to small-sample biases, but the correction used by prior studies can substantially understate forecasting power. I show that dividend yield predicts market returns during the period 1946–2000, as well as in various subsamples. Book-to-market and the earnings-price ratio predict returns during the shorter sample 1963–2000. The evidence remains strong despite the unusual price run-up in recent years.
- DOI
- 10.1016/j.jfineco.2002.11.002
- Volume
- 74
- Issue
- 2
- Pages
- 209-235
- Language
- en
- Sources
- crossref bibtex:phds-export.bib openalex