Average Returns, B/M, and Share Issues
36 Pages Posted: 20 May 2007 Last revised: 22 Oct 2007
Date Written: May 2007
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.
Keywords: Average Returns, B/M, and Share Issues
JEL Classification: G12
Suggested Citation: Suggested Citation
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