Book-to-Market as a Predictor of Market Returns

Posted: 25 Aug 1998

See all articles by Jeffrey Pontiff

Jeffrey Pontiff

Boston College - Department of Finance

Lawrence Schall

University of Washington - Department of Finance and Business Economics

Abstract

The book-to-market ratio of the Dow Jones Index predicts market returns and small firm excess returns over the period of 1926 to 1992. Book-to-market contains information about future returns that is not captured by other variables that forecast returns such as interest yield spreads and dividend yields. Book-to-market's predictive ability is driven by the pre-1960 subsample. We also document that book-to-market and dividend yield forecast the excess returns of a high book-to-market portfolio minus the returns of a low book-to-market portfolio. The predictive ability of book-to-market appears related to the ability of book value to forecast future earnings.

JEL Classification: G19

Suggested Citation

Pontiff, Jeffrey and Schall, Larry, Book-to-Market as a Predictor of Market Returns. Available at SSRN: https://ssrn.com/abstract=6543

Jeffrey Pontiff (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Larry Schall

University of Washington - Department of Finance and Business Economics ( email )

Box 353200
Seattle, WA 98195
United States
(206) 543-4773 (Phone)

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