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- Title
Alternative profitability measures and cross-section of expected stock returns: international evidence.
- Authors
Cakici, Nusret; Chatterjee, Sris; Tang, Yi; Tong, Lin
- Abstract
This paper provides an extensive international analysis of the cross-sectional return predictive power of a variety of firm-level profitability measures, calculated from different combinations of measures of earnings and scaling variables. We show that this cross-sectional predictive relation is more pronounced when profit is measured by gross profit and when profits are scaled by enterprise value or market value of equity. Our findings support the hypotheses that the predictive power of "profits-to-market price" factor is partly attributable to stock mispricing arising from systematic behavioral biases and partly to the choice of a "clean" measure of earnings.
- Subjects
EXPECTED returns; ENTERPRISE value; PROFITABILITY; GROSS margins; BEHAVIORAL economics
- Publication
Review of Quantitative Finance & Accounting, 2021, Vol 56, Issue 1, p369
- ISSN
0924-865X
- Publication type
Article
- DOI
10.1007/s11156-020-00897-7