Returns and Pricing in Emerging Markets

This study estimates the significance of price-to-book, price-to-earnings, and market size as determinants of equity returns of 21 emerging equity markets over 1991–2000. Cross-sectional data indicate the significance of the P/BV ratio and market size, but pooled data results show the significance of only P/BV; these findings are similar to results in developed markets. Additional estimates confirm the insignificance of P/E ratio, thus proving the P/BV is a better predictor of equity returns. This study provides further insight into the discussion on the choice between P/BV and P/E.