Book-to-market ratios as predictors of market returns 1 This paper has benefited from comments from workshop participants at Arizona State University, University of Washington, and the Western Finance Association meetings, as well as Hendrik Bessembinder, Gary Biddle, Michael Brennan, J.B. Chay, Roger Edelen, Eugene Fama (the referee), Wayne Ferson, Mark Huson, S.P. Kothari, Paul Malatesta, Eric Noreen, Charles Nelson, Vance Roley, Andrew Siegel, Jerold Warner, and Simon Wheatley. We would also like to thank David Myers and Denny Stephenus for research assistance, and Kenneth French for providing some of the data used in this study. 1

Book-to-market ratios as predictors of market returns 1 This paper has benefited from comments... The book-to-market ratio of the Dow Jones Industrial Average predicts market returns and small firm excess returns over the period 1926–1994. The DJIA book-to-market ratio contains information about future returns that is not captured by other variables such as interest yield spreads and dividend yields. The DJIA book-to-market ratio's predictive ability is specific to the pre-1960 sample. In contrast, the S&P book-to-market ratio provides some predictive ability in the post-1960 period, although this relation is dramatically weaker than the Dow Jones pre-1960 findings. The predictive ability of book-to-market ratios appears to stem from the relation between book value and future earnings. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Book-to-market ratios as predictors of market returns 1 This paper has benefited from comments from workshop participants at Arizona State University, University of Washington, and the Western Finance Association meetings, as well as Hendrik Bessembinder, Gary Biddle, Michael Brennan, J.B. Chay, Roger Edelen, Eugene Fama (the referee), Wayne Ferson, Mark Huson, S.P. Kothari, Paul Malatesta, Eric Noreen, Charles Nelson, Vance Roley, Andrew Siegel, Jerold Warner, and Simon Wheatley. We would also like to thank David Myers and Denny Stephenus for research assistance, and Kenneth French for providing some of the data used in this study. 1

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Publisher
Elsevier
Copyright
Copyright © 1998 Elsevier Science S.A.
ISSN
0304-405x
D.O.I.
10.1016/S0304-405X(98)00020-8
Publisher site
See Article on Publisher Site

Abstract

The book-to-market ratio of the Dow Jones Industrial Average predicts market returns and small firm excess returns over the period 1926–1994. The DJIA book-to-market ratio contains information about future returns that is not captured by other variables such as interest yield spreads and dividend yields. The DJIA book-to-market ratio's predictive ability is specific to the pre-1960 sample. In contrast, the S&P book-to-market ratio provides some predictive ability in the post-1960 period, although this relation is dramatically weaker than the Dow Jones pre-1960 findings. The predictive ability of book-to-market ratios appears to stem from the relation between book value and future earnings.

Journal

Journal of Financial EconomicsElsevier

Published: Aug 1, 1998

References

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