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Size and book-to-market factors in the relationship between average stock returns and average book returns: some evidence from an emerging market

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Author Info

  • Dimitrios Kousenidis
  • Christos Negakis
  • Iordanis Floropoulos

Abstract

The present paper examines the association between average stock returns and average book returns and addresses the question as to whether there are common size and book-to-market factors in earnings and returns. The results of the empirical research, conducted in the Athens Stock Exchange, suggest that when the sample firms are grouped into size, book-to-market portfolios stock returns properly reflect differences in the evolution of accounting profitability. Moreover, it is found that the return on investment (ROI) measure contains size and book-to-market factors analogous to the mimic risk factors inherent in stock returns, in the sense that they capture information missed by ROI.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/09638180050129882
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal European Accounting Review.

Volume (Year): 9 (2000)
Issue (Month): 2 ()
Pages: 225-243

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Handle: RePEc:taf:euract:v:9:y:2000:i:2:p:225-243

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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May.
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  3. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W, 1994. " Contrarian Investment, Extrapolation, and Risk," Journal of Finance, American Finance Association, vol. 49(5), pages 1541-78, December.
  4. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-64, December.
  5. Bulkley, George & Harris, Richard, 1996. "Why Does the Ratio of Book to Market Value of Equity Explain Cross-Section Stock Returns?," Discussion Papers 9609, Exeter University, Department of Economics.
  6. G. Geoffrey Booth & John Broussard & Otto Loistl, 1997. "Earnings and stock returns: evidence from Germany," European Accounting Review, Taylor and Francis Journals, vol. 6(4), pages 589-603.
  7. Fama, Eugene F & French, Kenneth R, 1996. " Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
  8. Apostolos Ballas, 1994. "Accounting in Greece," European Accounting Review, Taylor and Francis Journals, vol. 3(1), pages 107-121.
  9. La Porta, Rafael, 1996. " Expectations and the Cross-Section of Stock Returns," Journal of Finance, American Finance Association, vol. 51(5), pages 1715-42, December.
  10. Fama, Eugene F & French, Kenneth R, 1995. " Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 131-55, March.
  11. Kothari, S P & Shanken, Jay & Sloan, Richard G, 1995. " Another Look at the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 185-224, March.
  12. Nikos Vafeas & Lenos Trigeorgis & Xenia Georgiou, 1998. "The usefulness of earnings in explaining stock returns in an emerging market: the case of Cyprus," European Accounting Review, Taylor and Francis Journals, vol. 7(1), pages 105-124.
  13. Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
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Cited by:
  1. Filip, Andrei & Raffournier, Bernard, 2010. "The value relevance of earnings in a transition economy: The case of Romania," The International Journal of Accounting, Elsevier, vol. 45(1), pages 77-103, March.
  2. Neringa Jarmalaite Pritchard, 2002. "The Relationship between Accounting Numbers and Returns in the Baltic Stock Markets," CERT Discussion Papers 0206, Centre for Economic Reform and Transformation, Heriot Watt University.

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