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Stock Market Valuation Indicators: Is This Time Different?

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  • Kevin Cole
  • Jean Helwege
  • David Laster

Abstract

Traditional market indicators have pointed to an overvalued stock market throughout the 1990s, because the dividend yield dropped to a record low and the market-to-book ratio reached a record high. Despite the indicators, the stock market has performed well, leading market watchers to question whether these indicators behave differently now than they have in the past. This article examines the predictive power of these measures and addresses the claim that the dividend yield and market-to-book ratio are no longer valid indicators. We find that share repurchase activity has not been especially high through most of the 1990s and that, adjusting for buybacks, the dividend yield remains low. Likewise, the market-to-book ratio remains at a record high once charges for retiree health liabilities have been taken into account.

Suggested Citation

  • Kevin Cole & Jean Helwege & David Laster, 1996. "Stock Market Valuation Indicators: Is This Time Different?," Financial Analysts Journal, Taylor & Francis Journals, vol. 52(3), pages 56-64, May.
    • Handle: RePEc:taf:ufajxx:v:52:y:1996:i:3:p:56-64
    DOI: 10.2469/faj.v52.n3.1996
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