Abstract
Executive Summary. Both dividend yields and past returns have predictive power for P/E ratios; hence they can be used as tools in forming a market timing and asset allocation strategy in stock markets. This study examines the extent to which changes in real estate returns, reflected in changes of property value and dividend yields, can have great effects on P/E ratios. The study is confined to four major real estate stocks in Hong Kong. It shows that a low dividend yield appears to be associated with a relatively high price-to-earning ratio. Variance of dividend yields tends to increase relative to the variance of earnings yield, with a rapid dividend adjustment at higher dividend payout ratios.
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