Barber and Lyon are from the Graduate School of Management, UC-Davis. We have benefited from the insights of Masako Darrough, Paul Griffin, Michael Maher, René Stulz, and an anonymous reviewer. All errors are our own.
Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms
Article first published online: 18 APR 2012
1997 The American Finance Association
The Journal of Finance
Volume 52, Issue 2, pages 875–883, June 1997
How to Cite
BARBER, B. M. and LYON, J. D. (1997), Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms. The Journal of Finance, 52: 875–883. doi: 10.1111/j.1540-6261.1997.tb04826.x
- Issue published online: 18 APR 2012
- Article first published online: 18 APR 2012
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 is 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.