Journal of Financial Economics Vol. 49 No. 2 1998
Book-to-market ratios as predictors of market returns
Abstract
The book-to-market ratio of the Dow Jones Industrial Average predicts market returns and small firm excess returns over the period 1926–1994. The DJIA book-to-market ratio contains information about future returns that is not captured by other variables such as interest yield spreads and dividend yields. The DJIA book-to-market ratio's predictive ability is specific to the pre-1960 sample. In contrast, the S&P book-to-market ratio provides some predictive ability in the post-1960 period, although this relation is dramatically weaker than the Dow Jones pre-1960 findings. The predictive ability of book-to-market ratios appears to stem from the relation between book value and future earnings.
- DOI
- 10.1016/s0304-405x(98)00020-8
- Volume
- 49
- Issue
- 2
- Pages
- 141-160
- Sources
- bibtex:phds-export.bib openalex crossref