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Negative earnings, positive earnings and stock return predictability: An empirical examination of market timing

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  • Barnhart, Scott W.
  • Giannetti, Antoine
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    Abstract

    We examine the predictive ability of earnings-price ratios or yields for the S&P 500 index. We decompose the aggregate earnings-price ratio into its positive and negative components ("winners" vs "losers") and find that the negative component has the most predictive ability. We also find that the earnings-price measures forecast both future returns and earnings growth. Our models display substantial variation in explanatory power over time with forecast power resurfacing in the latter 1990s. We conclude that to the extent that earnings-price yields predict future S&P 500 returns, the negative earnings component is the driving factor.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 1 (January)
    Pages: 70-86

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    Handle: RePEc:eee:empfin:v:16:y:2009:i:1:p:70-86

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    Web page: http://www.elsevier.com/locate/jempfin

    Related research

    Keywords: Investments Earnings Predictability of stock returns Market timing;

    References

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    Cited by:
    1. Rui Gon\c{c}alves & Helena Ferreira & Alberto Pinto, 2010. "Universality in DAX index returns fluctuations," Papers 1004.1136, arXiv.org, revised Apr 2010.

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