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Volatility of Price–Earnings Ratio and Long‐Run Return Predictability

Xiaoquan Jiang & Chen Li

Financial Management2026https://doi.org/10.1111/fima.70030article
AJG 3ABDC A*
Weight
0.50

What the paper says

We introduce a novel second‐order dynamic price–earnings ratio model and demonstrate that both the level and volatility of the price–earnings ratio serve as optimal forecasts of future returns and cash‐flow growth. We show that the volatility of the price–earnings ratio positively predicts future stock returns with both statistical and economic significance, in various horizons and frequencies, and both in‐sample and out‐of‐sample. The volatility of the price–earnings ratio outperforms both the level of the price–earnings ratio and market volatility in predicting returns. Additionally, we find that the volatility of the price–earnings ratio significantly and negatively predicts future macroeconomic growth.

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https://doi.org/https://doi.org/10.1111/fima.70030

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@article{xiaoquan2026,
  title        = {{Volatility of Price–Earnings Ratio and Long‐Run Return Predictability}},
  author       = {Xiaoquan Jiang & Chen Li},
  journal      = {Financial Management},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1111/fima.70030},
}

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Volatility of Price–Earnings Ratio and Long‐Run Return Predictability

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Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.