Aggregate Earnings and Expected Stock Returns in Emerging Markets

This paper examines the time-series predictability of aggregate stock returns in twenty emerging markets. In contrast to the aggregate-level findings in the United States, earnings yield forecasts the time series of aggregate stock returns in emerging markets. We consider aggregate earnings not as normalizing variables for stock price but as predictive variables in their own right. Aggregate earnings covary with the market returns; hence, it is not just the mean reversion of stock prices that is responsible for the forecasting power of earnings yield. These results are robust across different estimation methods and after controlling for small-sample bias and macroeconomic variables.