Abstract
Price-earnings (P/E) ratios, the most popular value metrics, are widely reported using the last four quarters of earnings. Trailing-four-quarter P/E ratios have significantly greater return predictability than lagged P/E ratios or current market-to-book ratios. The role of attention is evident in return patterns across the long and short portfolios, day of the week, and time since formation. Returns are robust to fundamentals, price momentum, or earnings momentum. P/E ratios predict changes in volume, liquidity, and idiosyncratic volatility. Financial data providers only report P/E ratios for stocks with positive earnings; P/E ratios only predict trading activity for these stocks.
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