Article1996

Expectations and the Cross-Section of Stock Returns

Unknown author

982 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

ABSTRACT Previous research has shown that stocks with low prices relative to book value, cash flow, earnings, or dividends (that is, value stocks) earn high returns. Value stocks may earn high returns because they are more risky. Alternatively, systematic errors in expectations may explain the high returns earned by value stocks. I test for the existence of systematic errors using survey data on forecasts by stock market analysts. I show that investment strategies that seek to exploit errors in analysts' forecasts earn superior returns because expectations about future growth in earnings are too extreme.

Citations in this library

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References

1992The Cross-Section of Expected Stock Returns 1973Risk, Return, and Equilibrium: Empirical Tests 1993Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency 1985Does the Stock Market Overreact?1973On the psychology of prediction.1981The relationship between return and market value of common stocks 1982Judgment under uncertainty: Causality and attribution 1994Contrarian Investment, Extrapolation, and Risk

Cited by

2001Understanding the Nature of the Risks and the Source of the Rewards to Momentum Investing 2004Analyzing the Analysts: When Do Recommendations Add Value?1997Good News for Value Stocks: Further Evidence on Market Efficiency 2002Book‐to‐Market Equity, Distress Risk, and Stock Returns 2003Inferring the Cost of Capital Using the Ohlson–Juettner Model 2012Political connections and the cost of equity capital 2002Investor psychology in capital markets: evidence and policy implications

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