SSRN-Size and Book to Market Factors in Earnings and Returns by Eugene Fama, Kenneth French

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Size and Book to Market Factors in Earnings and Returns

EUGENE F. FAMA
University of Chicago - Graduate School of Business
KENNETH R. FRENCH
Dartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER)

JOURNAL OF FINANCE, Vol 50, No 1, March 1995

Abstract:
We study whether the behavior of stock prices, in relation to size and book to market equity (BE/ME), reflects the behavior of earnings. Consistent with rational pricing, high BE/ME signals persistent poor earnings and low BE/ME signals strong earnings. Moreover, stock prices forecast the reversion of earnings growth observed after firms are ranked on size and BE/ME. Finally, there are market, size, and BE/ME factors in earnings like those in returns. The market and size factors in earnings help explain those in returns, but we find no link between BE/ME factors in earnings and returns.

JEL Classifications: G12, G3

Accepted Paper Series

Contact Information for EUGENE F. FAMA (Contact Author) Email address for EUGENE F. FAMA University of Chicago - Graduate School of Business Chicago , IL 60637 United States 773-702-7282 (Phone) 773-702-9937 (Fax)
Contact Information for KENNETH R. FRENCH Email address for KENNETH R. FRENCH Dartmouth College - Tuck School of Business Hanover , NH 03755 United States
(No e-mail address available for KENNETH R. FRENCH National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge , MA 02138 United States

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