THE RELATIONSHIP BETWEEN EARNINGS’ YIELD, MARKET VALUE AND RETURN FOR NYSE COMMON STOCKS Further Evidence*

The empirical relationship between earnings’ yield, firm size and relurns on the common stock ol NYSE firms is examined in this paper. The results conlirm that the common stock of high &P firms earn, on average. higher risk-adjusted returns than the common stock of low E/P lirms and that this efiect is clearly significant even if experimental control is exercised over difTcrcnces in lirm size. On the other hand, while the common stock of small NYSE lirms appear to have earned substantially higher returns than the common stock of large NYSE lirms, the size efTect virtually disappears when returns are controlled for differences in risk and E/P ratios. The evidence presented here indicates that the E/P effect, however, is not entirely independent of firm size and that the effect of both variables on expected returns is considerably more complicated than previously documented in the literature.