The relationship between earnings' yield, market value and return for nyse common stocks: further evidence

Abstract

<p>The empirical relationship between earnings' yield, firm size and returns on the common stock of NYSE firms is examined in this paper. The results confirm that the common stock of high E/P firms earn, on average, higher risk-adjusted returns than the common stock of low E/P firms. This E/P effect is clearly significant even if experimental control is exercised over differences in firm size, i.e., the effect of size, as measured by the market value of common stock, is randomized. The results also show that while the common stock of small NYSE firms appear to have earned marginally higher risk-adjusted returns than the common stock of large NYSE firms, the size effect virtually disappears when returns are controlled for differences in E/P ratios. The evidence included in this paper lends credibility to the view that, at least for NYSE firms, the effect of differences in market value or size on common stock returns is of secondary importance when compared with the effect of E/P ratios</p>