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- Title
Book-to-Market and the Cross-Section of Expected Returns in International Stock Markets.
- Authors
BALI, TURAN G.; CAKICI, NUSRET; FABOZZI, FRANK J.
- Abstract
Individual stocks' expected return estimates are a key input for equity selection models. A 2008 study by Eugene Fama and Kenneth French found evidence that past changes in book equity and price contain independent information about expected cash flows that can be used to improve estimates of expected returns. This study focuses on international stock markets and re-examines whether the origins of the book-to-market ratio (BM), in terms of past changes in book equity and price, enhance the estimates of expected returns provided by BM alone. Examining all stocks, as well as subcategories of microcap, small, large, and all-but-microcap stocks trading in the United Kingdom, Germany, France, Italy, Canada, and Japan, the authors find that recent changes in book equity and price are more relevant than more distant changes in enhancing estimates of expected future cash flows and expected future returns. Their tests also show that changes in book equity say much more about expected stock returns than price changes do.
- Subjects
RATE of return; STOCK exchanges; CASH flow; BOOK-to-market ratio; FINANCIAL ratios
- Publication
Journal of Portfolio Management, 2013, Vol 39, Issue 2, p101
- ISSN
0095-4918
- Publication type
Article
- DOI
10.3905/jpm.2013.39.2.101