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The Journal of Wealth Management

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Primary Article

Forecasting Stock Returns

The Relative Importance of Valuation Variables

Charles P. Jones and Leonard L. Lundstrum
The Journal of Wealth Management Summer 2006, 9 (1) 31-36; DOI: https://doi.org/10.3905/jwm.2006.628678
Charles P. Jones
Gill Professor of Finance at the College of Management of North Carolina State University in Raleigh, NC.
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  • For correspondence: Charles_jones@ncsu.edu
Leonard L. Lundstrum
An assistant professor of Finance at the College of Management of North Carolina State University in Raleigh, NC.
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  • For correspondence: Leonard_Lundstrum@ncsu.edu
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Abstract

To assess future returns an investor must understand the components on which returns are based. These components include the growth in the P/E ratio and the growth in real earnings. Our analysis shows that the growth rate in the P/E ratio and the growth rate in real earnings, as estimated over long periods and reported in the literature, have tended to obscure some important changes in the growth rates of these two variables. Examining the growth rates over shorter intervals reveals a different story and may offer insight into better forecasts of market returns.

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The Journal of Wealth Management
Vol. 9, Issue 1
Summer 2006
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Forecasting Stock Returns
Charles P. Jones, Leonard L. Lundstrum
The Journal of Wealth Management Apr 2006, 9 (1) 31-36; DOI: 10.3905/jwm.2006.628678

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Forecasting Stock Returns
Charles P. Jones, Leonard L. Lundstrum
The Journal of Wealth Management Apr 2006, 9 (1) 31-36; DOI: 10.3905/jwm.2006.628678
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