Correspondence: Pierre Giot, Department of Business Administration & CEREFIM, University of Namur, Rempart de la Vierge 8, Namur 5000, Belgium. Tel: +32 (0) 81 724887; E-mail: pierre.giot@fundp.ac.be

¹holds an MSc in Physics from McGill University and recently completed a Master in Finance at the Université Catholique de Louvain in Belgium. He is now working in the finance industry in Japan. This paper is based on his Master's thesis in finance.

²has a PhD in financial econometrics from the Université Catholique de Louvain in Belgium. He is a professor of finance at the University of Namur (Belgium) and has published in many leading finance journals such as the JIMF, the Journal of Empirical Finance and the Journal of Banking and Finance. His research focuses on market microstructure, risk management, venture capital economics and stock market valuation.

Received 29 March 2007; Revised 29 March 2007.

Abstract

In a way similar to Asness, this paper examines the effectiveness of earnings yields, as well as of their difference with long-term government bond yields (the so-called Fed model), to forecast real stock returns of various horizons in nine countries. Moreover, the same tests are repeated with dividend yields in place of earnings yields. Forecasting power is measured by using regression analysis. The results show that the traditional model is somewhat successful at forecasting long-term stock returns, whereas the Fed model is a failure.