The earnings yield, determined by the ratio of reported earnings to price, is frequently
used to predict real return. Complications characterize the predictions, however, because
reported earnings are not real. This research identifies an adjusted earnings yield that
ensures that real return can be determined as a ratio of current-period prices. From
freely accessible and publicly disseminated data, an adjusted-earnings-yield series is
created for the U.S. equity market. Statistical tests indicate that this measure is a much
better predictor of future real returns than are other popular valuation measures.