Earnings and expected returns

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Publication Details

Output type: Journal article

Author list: Lamont O

Publisher: Wiley

Publication year: 1998

Journal: The Journal of Finance (0022-1082)

Volume number: 53

Issue number: 5

Start page: 1563

End page: 1587

Number of pages: 25

ISSN: 0022-1082

eISSN: 1540-6261

Languages: English-Great Britain (EN-GB)

Unpaywall Data

Open access status: green

Full text URL: http://papers.nber.org/papers/w5671.pdf

Abstract

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.

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