PT  - JOURNAL ARTICLE
AU  - Thomas K. Philips
TI  - Why Do Valuation Ratios Forecast Long-Run Equity Returns?
AID  - 10.3905/jpm.1999.319714
DP  - 1999 Apr 30
TA  - The Journal of Portfolio Management
PG  - 39--44
VI  - 25
IP  - 3
4099  - https://pm-research.com/content/25/3/39.short
4100  - https://pm-research.com/content/25/3/39.full
AB  - A number of studies have documented the relationship between valuation ratios and long-horizon return equities. The author develops a simple analytic expression for the expected return and fair value of an equity market as a function of the economy wide return on equity and one or more valuation ratios. He also shows that the expected return of equities is now about 7%, and provides a simple explanation for why investors have come to believe, incorrectly, that it is 15% or greater. Finally, the author explores the implications of these results for tactical asset allocation.