Abstract
ABSTRACT This study finds that the earnings and dividend yields are significantly positively related to future annual stock market returns, and they explain 5% and 7%, respectively, of variations in annual stock market returns. Years following high dividend and earnings yields deliver abnormal annual returns of 7.16% and 10.27%, respectively, compared to years following low yields. These results suggest that the two yields indicating stock market valuation have significant predictive power for future stock market returns and can be used to generate abnormally high returns. Dividend yields have greater explanatory power for future stock market returns, but years following high earnings yields produce higher returns. Keywords Predicting Stock Market Returns, Market Variables, Abnormal Returns
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