Size and book-to-market factors in earnings and returns

Article Abstract:

We study whether the behavior of stock prices, in relation to size and book-to-market-equity (BE ME), reflects the behavior of earnings. Consistent with rational pricing, high BE ME signals persistent poor earnings and low BE ME signals strong earnings. Moreover, stock prices forecast the reversion of earnings growth observed after firms are ranked on size and BE ME. Finally, there are market, size, and BE ME factors in earnings like those in returns. The market and size factors in earnings help explain those in returns, but we find no link between BE ME factors in earnings and returns. (Reprinted by permission of the publisher.)

Prices and rates, Stock prices, Return on investment, Rate of return

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Value versus growth: the international evidence

Article Abstract:

Value stocks have higher returns than growth stocks in markets around the world. For the period 1975 through 1995, the difference between the average returns on global portfolios of high and low book-to-market stocks is 7.68 percent per year, and value stocks outperform growth stocks in twelve of thirteen major markets. An international capital asset pricing model cannot explain the value premium, but a two-factor model that includes a risk factor for relative distress captures the value premium in international returns. (Reprinted by permission of the publisher.)

Securities and Commodity Exchanges, Securities Exchanges, International aspects, Exchanges, Earnings per share

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The cross-section of expected stock returns

Article Abstract:

Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns associated with market beta, size, leverage, book-to-market equity, and earnings-price ratios. Moreover, when the tests allow for variation in beta that is unrelated to size, the relation between market beta and average return is flat, even when beta is the only explanatory variable. (Reprinted by permission of the publisher.)

Evaluation, Capital market, Capital markets

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