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The usefulness of book-to-market and ROE expectations for explaining UK stock returns
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Clubb, Colin and Naffi, Mounir (2007) The usefulness of book-to-market and ROE expectations for explaining UK stock returns. In: 28th Annual Congress of the European-Accounting-Association, Gothenburg, SWEDEN, MAY 18-20, 2005. Published in: Journal of Business, Finance and Accounting, 34 (1-2). pp. 1-32.
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Official URL: http://dx.doi.org/10.1111/j.1468-5957.2006.00662.x
Abstract
The fundamental valuation perspective on stock returns suggests that book-to-market will be positively related to returns if market value of equity equals future expected cash flows discounted at the expected return and book value proxies for future cash flows. Building on this perspective, we develop a log linear model which includes expectations of future BM and ROE in addition to current BM as explanatory variables for future stock returns. We show that these three variables explain a significant part of UK cross-sectional stock returns and that they remain highly statistically significant after including additional risk proxy variables. This supports relevance of fundamental valuation based firm characteristics for explaining stock returns and indicates their potential usefulness for predicting future stock returns.
| Item Type: | Conference Item (UNSPECIFIED) |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Warwick Business School |
| Journal or Publication Title: | Journal of Business, Finance and Accounting |
| Publisher: | Blackwell Publishing |
| ISSN: | 0306-686X |
| Date: | January 2007 |
| Volume: | 34 |
| Number: | 1-2 |
| Number of Pages: | 32 |
| Page Range: | pp. 1-32 |
| Identification Number: | 10.1111/j.1468-5957.2006.00662.x |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| Title of Event: | 28th Annual Congress of the European-Accounting-Association |
| Type of Event: | Conference |
| Location of Event: | Gothenburg, SWEDEN |
| Date(s) of Event: | MAY 18-20, 2005 |
| URI: | http://wrap.warwick.ac.uk/id/eprint/32291 |
Data sourced from Thomson Reuters' Web of Knowledge
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