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Average Returns, B/M, and Share Issues
Article first published online: 11 NOV 2008
DOI: 10.1111/j.1540-6261.2008.01418.x
© 2008 The American Finance Association
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How to Cite
FAMA, E. F. and FRENCH, K. R. (2008), Average Returns, B/M, and Share Issues. The Journal of Finance, 63: 2971–2995. doi: 10.1111/j.1540-6261.2008.01418.x
Publication History
- Issue published online: 11 NOV 2008
- Article first published online: 11 NOV 2008
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ABSTRACT
The book-to-market ratio (B/M) is a noisy measure of expected stock returns because it also varies with expected cashflows. Our hypothesis is that the evolution of B/M, in terms of past changes in book equity and price, contains independent information about expected cashflows that can be used to improve estimates of expected returns. The tests support this hypothesis, with results that are largely but not entirely similar for Microcap stocks (below the 20th NYSE market capitalization percentile) and All but Micro stocks (ABM).