BUSI 4502 Lecture Notes - Lecture 10: Earnings Yield, Yield Curve, Market Capitalization
30 Aug 2018
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Document Summary
Previous studies have support the efficiency of value strategy by showing that value stock outperform growth stocks. However, value strategies can produce long-term poor performance and it is risky. Researches have attempted in forecasting the differences between return to value and growth strategies based on aggregate and financial conditions, like earnings yield, slope of yield curve, profits and others. The results are inconsistent and are suspected to uncover ex post relationships. Hence, in this study, we proposed considering simple and intuitive variables, which are value spread and earnings growth spread. The sample size is the top 1,100 most liquid stocks, measured by the trailing quarters total dollar trading volume and rank among top 1,500 stocks based on market capitalization. The sample period is from 1982 to 1999. However, the authors did not provide much information regarding the origin of data. The first goal is to form a simple but robust proxy for value.
