PREDICTING RETURNS WITH FINANCIAL RATIOS
Name
4374-02.pdf
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366.48 KB
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0c006423b694df261b4a125b0a61f641
Author(s)
Lewellen, Jonathan
Date Issued
January 27, 2003
Series/Report no.
MIT Sloan School of Management Working Paper;4374-02
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 – 2000, as well as in various subperiods.
Book-to-market and the earnings-price ratio predict returns during the shorter 1963 –
2000 sample. The evidence remains strong despite the unusual price run-up in recent
years
Subjects
Predictive Regressions
Expected Returns
Small-sample Bias
Persistent DSpace Link
