Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms

Posted: 3 Jul 1998  

Brad M. Barber

University of California, Davis

John D. Lyon

The University of Melbourne, Department of Accounting and Business Information Systems

Date Written: February 1996

Abstract

Fama and French (1992) document a significant relation between firm size, book-to-market ratios, and security returns for nonfinancial firms. Because of their initial interest in leverage as an explanatory variable for security returns, Fama and French exclude from their analysis financial firms, thus creating a natural holdout sample on which to test the robustness of their results. We document that the relation between firm size, book-to-market ratios, and security returns are similar for financial and nonfinancial firms. In addition, we present evidence that survivorship bias does not significantly affect the estimated size or book-to-market premiums in returns. Our results indicate data-snooping and selection biases do not explain the size and book-to-market patterns in returns.

JEL Classification: G12, G14

Suggested Citation

Barber, Brad M. and Lyon, John D., Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms (February 1996). Available at SSRN: https://ssrn.com/abstract=7282

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

John D. Lyon

The University of Melbourne, Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, 3010
Australia

HOME PAGE: http://www.abis.unimelb.edu.au/who/staff/john_lyon.html

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