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This paper incorporates recent equity valuation theories into the examination of determinants of earnings‐price (E/P) ratios to explain cross‐sectional differences in E/P ratios. The results show that ex ante measures of risk and growth as well as the payout ratio are the main determinants of E/P ratios. The persistence measure is not significantly related to E/P ratios. The results are robust to ordinary least square models as well as to a tobit censored regression.
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Jang Youn Cho (1994) studied this question.
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