Earning-to-price, dividend-to-price, firm growth and stock returns

Abstract EN

Cooper, Gulen and Schill (2005) examine the cross-sectional relation between firm asset growth and subsequent stock returns over the period 1963-2003.

They conclude that sorting US stocks on previous year asset growth rates is superior over other determinants of cross-sectional stock returns, such as: book-to-market, firm capitalization, momentum, amongst others.

In this paper, I use the one-factor and the multi-factor models to investigate the ability of earnings-to-price, dividend-to-price, previous year asset growth rates, and retained-earnings-to-total-asset to explain the crosssectional stock returns over the period 1980-2000.

Inconsistent with Cooper et al.

(2005), I conclude that sorting Jordanian firms on previous year asset growth rates is not superior over earnings-to-price and dividend-to-price.

Overall, the dividend-to-price strategy appears to be the best strategy that helps in predicting the cross-section of Jordanian stock returns.

JEL classification: G15