EP · Valuation · Basu (1977)

Earnings-to-Price Ratio

Long minus short quintile portfolio, value-weighted, market-adjusted. Quarterly, 1951Q1 to 2024Q4.

Expected return · posterior mean, % per quarter

Next quarter

0.87%

95% interval 0.00% to 1.69%

Next year

0.89%

95% interval 0.02% to 1.70%

Next five years

0.94%

95% interval 0.04% to 1.76%

Next quarter

0.82%

95% interval 0.19% to 1.43%

Next year

0.82%

95% interval 0.18% to 1.43%

Next five years

0.84%

95% interval 0.16% to 1.47%

Next quarter

0.82%

95% interval −0.25% to 1.74%

Next year

0.84%

95% interval −0.20% to 1.76%

Next five years

0.89%

95% interval −0.12% to 1.83%

Next quarter

0.74%

95% interval −0.09% to 1.51%

Next year

0.76%

95% interval −0.07% to 1.52%

Next five years

0.79%

95% interval −0.04% to 1.57%

Cumulative market-adjusted return

+1,225% since 1951Q1 · log scale

Window	Mean	Vol.	Sharpe	t
1951Q1–2024Q4	4.41%	13.51%	0.33	2.81
2020Q1–2024Q4	4.48%	20.13%	0.22	0.50
2024Q1–2024Q4	−14.35%	4.42%	−3.25	−3.25
1951Q1–2024Q4	3.76%	10.94%	0.34	2.95
2020Q1–2024Q4	8.14%	19.99%	0.41	0.91
2024Q1–2024Q4	−13.58%	2.16%	−6.30	−6.30
1951Q1–2024Q4	4.14%	15.80%	0.26	2.25
2020Q1–2024Q4	9.83%	23.87%	0.41	0.92
2024Q1–2024Q4	−26.23%	5.69%	−4.61	−4.61
1951Q1–2024Q4	3.65%	13.10%	0.28	2.40
2020Q1–2024Q4	8.99%	23.92%	0.38	0.84
2024Q1–2024Q4	−21.60%	3.84%	−5.62	−5.62

Horizon	Mean	95% interval	P(neg)
Next quarter	0.129	0.001 – 0.250	0.02
Next year	0.132	0.003 – 0.251	0.02
Next five years	0.140	0.007 – 0.261	0.02
Next quarter	0.150	0.035 – 0.261	0.01
Next year	0.150	0.034 – 0.262	0.01
Next five years	0.153	0.029 – 0.269	0.01
Next quarter	0.104	−0.031 – 0.221	0.06
Next year	0.106	−0.025 – 0.223	0.05
Next five years	0.113	−0.015 – 0.231	0.04
Next quarter	0.114	−0.014 – 0.231	0.04
Next year	0.116	−0.010 – 0.232	0.03
Next five years	0.121	−0.006 – 0.240	0.03