 Stock market valuation indicators: is this time different?Kevin Cole, Jean Helwege and David S. Laster No 9520, Research Paper from Federal Reserve Bank of New York Abstract: Record low dividend yields and record high market-to-book ratios in recent months have led many market watchers to conclude that these indicators now behave differently from how they have in the past. This paper examines the relationship between traditional market indicators and stock performance, and then addresses two popular claims that the meaning of these indicators has changed in recent years. The first is that dividend yields are permanently lower now than in the past because firms have increased their use of share repurchases as a tax-advantaged substitute for dividends. The second claim is that the implementation of Financial Accounting Standard (FAS) 106 for retiree health liabilities has seriously depressed the reported book values of many companies since the early 1990s, artificially raising their market-to-book ratios. We conclude that, even after adjusting for these factors, the current level of market indicators is a cause for concern. Keywords: Forecasting; Stock market; Cafeteria benefit plans (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fednrp:9520 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Research Paper from Federal Reserve Bank of New York Contact information at EDIRC. |
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