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Stock market valuation indicators: is this time different?


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  • Jean Helwege
  • David Laster
  • Kevin Cole
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    Record low dividend yields and record high market-to-book ratios in recent months have led many market watchers to conclude that these indicators now behave differently from how they have in the past. This paper examines the relationship between traditional market indicators and stock performance, and then addresses two popular claims that the meaning of these indicators has changed in recent years. The first is that dividend yields are permanently lower now than in the past because firms have increased their use of share repurchases as a tax-advantaged substitute for dividends. The second claim is that the implementation of Financial Accounting Standard (FAS) 106 for retiree health liabilities has seriously depressed the reported book values of many companies since the early 1990s, artificially raising their market-to-book ratios. We conclude that, even after adjusting for these factors, the current level of market indicators is a cause for concern.

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    Bibliographic Info

    Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9520.

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    Date of creation: 1995
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    Handle: RePEc:fip:fednrp:9520

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    Keywords: Cafeteria benefit plans ; Forecasting ; Stock market;


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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Stock market valuation indicators: is this time different?
      by Miguel in Simoleon Sense on 2010-09-04 16:21:31
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    Cited by:
    1. John B. Carlson & Eduard A. Pelz & Mark Wohar, 2001. "Will the valuation ratios revert to their historical means? Some evidence from breakpoint tests," Working Paper 0113, Federal Reserve Bank of Cleveland.
    2. DeAngelo, Harry & DeAngelo, Linda & Skinner, Douglas J., 2000. "Special dividends and the evolution of dividend signaling," Journal of Financial Economics, Elsevier, vol. 57(3), pages 309-354, September.


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