Book-to-market, dividend yield, and expected market returns: A time-series analysis

Book-to-market, dividend yield, and expected market returns: A time-series analysis We find reliable evidence that both book-to-market (B M) and dividend yield track time-series variation in expected real stock returns over the period 1926 91 (in which B M is stronger) and the subperiod 1941–1991 (in which dividend yield is stronger). A Bayesian bootstrap procedure implies that an investor with prior belief 0.5 that expected returns on the equal-weighted index are never negative comes away from the full-period B/M evidence with posterior probability 0.08 for the hypothesis (0.14 with the impact of the 1933 outlier tempered). Although this raises doubts about market efficiency, the post-1940 evidence is consistent with expected returns always being positive. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Book-to-market, dividend yield, and expected market returns: A time-series analysis

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Publisher
Elsevier
Copyright
Copyright © 1997 Elsevier Ltd
ISSN
0304-405x
DOI
10.1016/S0304-405X(97)00002-0
Publisher site
See Article on Publisher Site

Abstract

We find reliable evidence that both book-to-market (B M) and dividend yield track time-series variation in expected real stock returns over the period 1926 91 (in which B M is stronger) and the subperiod 1941–1991 (in which dividend yield is stronger). A Bayesian bootstrap procedure implies that an investor with prior belief 0.5 that expected returns on the equal-weighted index are never negative comes away from the full-period B/M evidence with posterior probability 0.08 for the hypothesis (0.14 with the impact of the 1933 outlier tempered). Although this raises doubts about market efficiency, the post-1940 evidence is consistent with expected returns always being positive.

Journal

Journal of Financial EconomicsElsevier

Published: May 1, 1997

References

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