Article1995

Size and Book-to-Market Factors in Earnings and Returns

3,456 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

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.

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References

1993Common risk factors in the returns on stocks and bonds 1992The Cross-Section of Expected Stock Returns 1973An Intertemporal Capital Asset Pricing Model 1994Contrarian Investment, Extrapolation, and Risk 1988Dividend yields and expected stock returns 1981Stock Returns, Real Activity, Inflation, and Money

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