Decomposing the Earnings-to-Price Ratio and the Cross-section of International Equity-Index Returns

Applied Economics

33 Pages Posted: 11 Dec 2019 Last revised: 8 Jun 2021

See all articles by Mehmet Umutlu

Mehmet Umutlu

Yasar University - Department of International Trade and Finance

Pelin Bengitoz

Yasar University - Deparment of International Trade and Finance

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business

Date Written: September 22, 2020

Abstract

We examine whether components of the earnings-to-price (EP) ratio can be used to extract incremental information to better estimate future returns in the cross-section of country-industry indexes. We demonstrate that the EP components such as lagged EP, changes in earnings, short-term momentum, and long-term reversal in prices increase the accuracy of return forecasts. The EP decomposition matters in developed markets, however is pointless in emerging countries. The results are robust to modifications in the methodology, sub-period analyses, the use of an alternative sample and remain unchanged after controlling for net share issuance and size effects.

Keywords: International Portfolio Management, E/P Decomposition, Value Effect, Equity Anomalies, Index Returns, Return Predictability

JEL Classification: G11, G12, G17

Suggested Citation

Umutlu, Mehmet and Bengitoz, Pelin and Zaremba, Adam, Decomposing the Earnings-to-Price Ratio and the Cross-section of International Equity-Index Returns (September 22, 2020). Applied Economics, Available at SSRN: https://ssrn.com/abstract=3492355 or http://dx.doi.org/10.2139/ssrn.3492355

Mehmet Umutlu (Contact Author)

Yasar University - Department of International Trade and Finance ( email )

Universite Street
Izmir
Turkey

Pelin Bengitoz

Yasar University - Deparment of International Trade and Finance ( email )

Universite Street
Izmir
Turkey

Adam Zaremba

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
70
Abstract Views
466
rank
403,126
PlumX Metrics