Cross-Sectional PEG Ratios, Market Equity Premium, and Macroeconomic Activity

25th Australasian Finance and Banking Conference 2012

Journal of Accounting, Auditing and Finance, 35(3), 2020, 471-500

43 Pages Posted: 29 Aug 2012 Last revised: 9 Nov 2021

See all articles by Xiaoquan Jiang

Xiaoquan Jiang

Florida International University (FIU) - Department of Finance

Qiang Kang

Florida International University (FIU) - Department of Finance

Date Written: August 27, 2012

Abstract

This paper explores the information content of PEG ratios for future aggregate returns and economic fundamentals. We first establish an analytic link between PEG ratios and time-varying expected returns of stocks. We then combine the link with empirical asset-pricing models to extract market-wide information from cross-sectional PEG ratios. The resultant cross-section estimates of the risk premiums on stock betas serve as proxies for market-wide information. The proxies contain salient information about future market equity premiums and macroeconomic activity both in-sample and out-of-sample. Moreover, the proxies outperform aggregate PEG ratios and the cross-section beta-premium estimate based on conventional valuation ratios and retain incremental power in forecasting future market equity premiums. The results are robust to using various econometric methods for standard-error adjustments.

Keywords: PEG Ratios; Analysts’ Forecasts; Predicting Market Equity Premium; Predicting Macroeconomic Activity; Out-of-Sample Forecasting

JEL Classification: E17; E44; G12; G14; G17; M40; M41

Suggested Citation

Jiang, Xiaoquan and Kang, Qiang, Cross-Sectional PEG Ratios, Market Equity Premium, and Macroeconomic Activity (August 27, 2012). 25th Australasian Finance and Banking Conference 2012, Journal of Accounting, Auditing and Finance, 35(3), 2020, 471-500, Available at SSRN: https://ssrn.com/abstract=2137295 or http://dx.doi.org/10.2139/ssrn.2137295

Xiaoquan Jiang

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Qiang Kang (Contact Author)

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
242
Abstract Views
1,836
Rank
228,715
PlumX Metrics