Tangible and Intangible Information in Emerging Markets

56 Pages Posted: 22 Sep 2017 Last revised: 29 Oct 2017

Date Written: October 21, 2017


High book-to-market stocks earn higher average returns than low book-to-market stocks. This result has been verified using stock returns from the U.S., developed, and emerging markets. Why B/M explains expected returns is still an open question. In this paper, we use stock returns representing twenty-five emerging markets to differentiate between competing theories. Our results differ from papers studying the U.S. stock market. For emerging markets, the component of book-to-market that is related to tangible information (past accounting performance) is significantly related to expected returns while the component related to intangible information is not. Our evidence is consistent across emerging market regions, across size groups, and across subperiods. We attempt to differentiate between overreaction and risk explanations for the B/M effect. We find some evidence to support overreaction but find no support for the risk explanation.

Keywords: Book-to-market decomposition, Value effect, Emerging markets, Tangible information, Intangible information, Overreaction

JEL Classification: F20, F21, F30, G10, G11, G12, G15

Suggested Citation

Blackburn, Douglas W. and Cakici, Nusret, Tangible and Intangible Information in Emerging Markets (October 21, 2017). Available at SSRN: https://ssrn.com/abstract=3040890 or http://dx.doi.org/10.2139/ssrn.3040890

Douglas W. Blackburn (Contact Author)

JP Morgan Chase ( email )

New York, NY
United States

Nusret Cakici

Fordham University ( email )

Fordham University
Graduate School of Business
New York, NY 10023
United States
2126366776 (Phone)

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