Proxying for Expected Returns with Price Earnings Ratios

Charlotte Strunk Hansen and Bjorn E. Tuypens
Additional contact information
Bjorn E. Tuypens: Oak Hill Platinum Partners, L.L.C.

Finance from EconWPA

Abstract: Long-run regression models using the trailing earnings over price ratio to predict future returns suggested by Campbell and Shiller (1988, 2001) work quite well. However, in this note we show that this variable might result in a downward biased proxy for expected future returns. Instead we suggest using a moving average of the log of 1 plus the earnings price ratio when forecasting long-run returns. The empirical results for the S&P 500 show the superiority of our approach to existing ones.

Keywords: Earnings yield; Stock Return; Forecasting (search for similar items in EconPapers)
JEL-codes: C52 G12 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin
Date: 2004-10-28
Note: Type of Document - pdf; pages: 10
View list of references View citations in EconPapers

Downloads: (external link)
http://129.3.20.41/eps/fin/papers/0410/0410019.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0410019

Access Statistics for this paper

More papers in Finance from EconWPA
Series data maintained by EconWPA ().