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Earnings and Expected Returns
Author(s) -
Lamont Owen
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00065
Subject(s) - earnings , dividend , stock (firearms) , economics , explanatory power , predictive power , financial economics , econometrics , post earnings announcement drift , dividend payout ratio , dividend yield , excess return , earnings per share , monetary economics , dividend policy , finance , mechanical engineering , paleontology , philosophy , context (archaeology) , epistemology , engineering , biology
The aggregate dividend payout ratio forecasts excess returns on both stocks and corporate bonds in postwar U.S. data. High dividends forecast high returns. High earnings forecast low returns. The correlation of earnings with business conditions gives them predictive power for returns; they contain information about future returns that is not captured by other variables. Dividends and earnings contribute substantial explanatory power at short horizons. For forecasting long‐horizon returns, however, only (scaled) stock prices matter. Forecasts of low long‐horizon stock returns in the mid‐1990s are caused not by earnings or dividends, but by high stock prices.