We outline a framework in which accounting “valuation anchors" could be connected to expected stock returns. Under two general conditions, expected log returns is a log- linear function of a valuation (market value-to-accounting) multiple and the expected growth in the valuation anchor. We...

We provide the first large-scale study of the performance of expected-return proxies (ERPs) internationally. Analyst-forecast-based ICCs are sparsely populated and not robustly associated with future returns. Earnings-model-forecast-based ICCs are well-populated, but are unreliable outside the...

Despite their popularity as proxies of expected returns, the implied cost of capital's (ICC) measurement error properties are relatively unknown. Through an in-depth analysis of a popular implementation of ICCs by Gebhardt, Lee, and Swaminathan (2001) (GLS), I show that ICC measurement errors...

In this article I discuss Penman (2016), titled “Valuation: Accounting for Risk and the Expected Return.” Penman (2016) is important because it offers potential insights that can help us understand why the book-to-market ratio and other accounting-based variables may impact expected stock...

This study finds that the association between future stock returns and information quality depends on how option-like is the firm's equity. Firms that have more growth options are more option-like. The association between future stock returns and information quality is negative (positive) for...

The vast majority of U.S. public firms announce earnings in the post-close (between the closing bell and midnight, or PC) or the pre-open (between midnight and the opening bell, or PO). Prior literature generally treats PC and PO announcements as equivalent when measuring the market reaction to...

The same firm characteristics that help explain cross-sectional variation in expected stock returns, such as size, book-to-market and the earnings yield, also help explain cross-sectional variation in returns to trading in option-implied stock return volatility. This empirical phenomenon is...