Book-to-Market Ratio and Skewness of Stock Returns

28 Pages Posted: 5 Jan 2011 Last revised: 2 Jul 2015

See all articles by Xiao-Jun Zhang

Xiao-Jun Zhang

University of California, Berkeley; China Academy of Financial Research (CAFR)

Date Written: December 25, 2010


This study demonstrates that stocks with low book-to-market ratios, also known as glamour stocks, have significantly more positive skewness in their return distributions compared to the return distributions of value stocks with high book-tomarket ratios. The premium (discount) investors apply to these glamour (value) stocks also correlates significantly with the difference in return skewness. These findings suggest that the value/glamour-stock puzzle is partially explained by investor preference for positive skewness in stock returns. Such preference for skewness, which is consistent with investors having inverse S-shaped utility functions, is observed in such consumer behaviors as lottery purchases and gambling. This paper further documents significant predictive power of accounting-based measures, such as the book rate of return, with respect to the skewness of stock returns.

Keywords: Accounting conservatism, Value/glamour stocks, Book-to-market ratio, Skewness, Growth, Capital asset pricing

JEL Classification: G11, G12, M41

Suggested Citation

Zhang, Xiao-Jun, Book-to-Market Ratio and Skewness of Stock Returns (December 25, 2010). Accounting Review, Vol. 88, No. 6, 2013, Available at SSRN: or

Xiao-Jun Zhang (Contact Author)

University of California, Berkeley ( email )

545 Student Services Building
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Berkeley, CA 94720
United States
(510) 642-4789 (Phone)
(510) 642-4700 (Fax)

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030

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