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

The Journal of Finance · 1995 · Vol. 50(1) · pp. 131–155

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.

Financial Markets and Investment StrategiesAuditing, Earnings Management, GovernanceCorporate Finance and GovernanceEarningsEarnings response coefficientEquity (law)EconomicsPrice–earnings ratioEarnings growthStock (firearms)Earnings yieldPost-earnings-announcement driftFinancial economics
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References
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Common risk factors in the returns on stocks and bonds
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