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Average Returns, B/M, and Share IssuesEugene F. FamaUniversity of Chicago - Booth School of Business (Finance Authors) Kenneth R. FrenchDartmouth College - Tuck School of Business; National Bureau of Economic Research (NBER) May 2007 CRSP Working Paper No. 619 Abstract: The book-to-market ratio, B/M, is a noisy measure of expected stock returns because B/M also varies with expected cashflows. Our hypothesis is that the evolution of B/M, in terms of past changes in book equity and price, contains independent information about expected cashflows that can be used to improve estimates of expected returns. The tests support this hypothesis, with results that are largely but not entirely similar for Microcap stocks (below the 20th NYSE market capitalization percentile) and All but Micro stocks.
Number of Pages in PDF File: 36 Keywords: Average Returns, B/M, and Share Issues JEL Classification: G12 working papers seriesDate posted: May 20, 2007 ; Last revised: October 22, 2007Suggested CitationContact Information
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