PREDICTING RETURNS WITH FINANCIAL RATIOS

Jonathan Lewellen

No 4374-02, Working papers from Massachusetts Institute of Technology (MIT), Sloan School of Management

Abstract: This article provides a new test of the predictive ability of aggregate financial ratios. Predictive regressions are subject to small-sample biases, but the correction in previous studies can substantially understate forecasting power. Dividend yield predicts aggregate market returns from 1946 Â€Ó 2000, as well as in various subperiods. Book-to-market and the earnings-price ratio predict returns during the shorter 1963 Â€Ó 2000 sample. The evidence remains strong despite the unusual price run-up in recent years

Keywords: Predictive Regressions; Expected Returns; Small-sample Bias (search for similar items in EconPapers)
Date: 2003-01-27
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Citations: View citations in EconPapers (13)

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