RoE · Profitability · Haugen and Baker (1996)

net income / book equity

Long minus short quintile portfolio, value-weighted, market-adjusted. Quarterly, 1961Q3 to 2024Q4.

Expected return · posterior mean, % per quarter

Next quarter

1.04%

95% interval 0.28% to 1.78%

Next year

0.99%

95% interval 0.26% to 1.73%

Next five years

0.84%

95% interval 0.09% to 1.64%

Next quarter

1.07%

95% interval 0.47% to 1.65%

Next year

1.05%

95% interval 0.44% to 1.66%

Next five years

0.98%

95% interval 0.24% to 1.69%

Next quarter

0.91%

95% interval 0.15% to 1.65%

Next year

0.89%

95% interval 0.12% to 1.67%

Next five years

0.84%

95% interval −0.05% to 1.74%

Next quarter

1.15%

95% interval 0.45% to 1.85%

Next year

1.14%

95% interval 0.42% to 1.86%

Next five years

1.09%

95% interval 0.26% to 1.90%

Cumulative market-adjusted return

+535% since 1961Q3 · log scale

Window	Mean	Vol.	Sharpe	t
1961Q3–2024Q4	3.51%	10.95%	0.32	2.56
2020Q1–2024Q4	5.00%	11.58%	0.43	0.97
2024Q1–2024Q4	12.84%	9.58%	1.34	1.34
1961Q3–2024Q4	4.37%	10.29%	0.42	3.38
2020Q1–2024Q4	7.44%	12.11%	0.61	1.37
2024Q1–2024Q4	1.03%	6.11%	0.17	0.17
1961Q3–2024Q4	3.72%	13.07%	0.28	2.27
2020Q1–2024Q4	6.04%	9.16%	0.66	1.47
2024Q1–2024Q4	2.35%	11.38%	0.21	0.21
1961Q3–2024Q4	4.92%	12.18%	0.40	3.22
2020Q1–2024Q4	7.20%	13.97%	0.51	1.15
2024Q1–2024Q4	2.74%	3.70%	0.74	0.74

Horizon	Mean	95% interval	P(neg)
Next quarter	0.190	0.051 – 0.328	0.00
Next year	0.181	0.048 – 0.318	0.00
Next five years	0.154	0.016 – 0.299	0.01
Next quarter	0.209	0.092 – 0.322	0.00
Next year	0.204	0.085 – 0.324	0.00
Next five years	0.190	0.048 – 0.328	0.01
Next quarter	0.140	0.024 – 0.253	0.01
Next year	0.137	0.018 – 0.256	0.01
Next five years	0.129	−0.007 – 0.266	0.03
Next quarter	0.189	0.074 – 0.304	0.00
Next year	0.187	0.068 – 0.306	0.00
Next five years	0.180	0.043 – 0.313	0.01