A Reexamination of Firm Size, Book-to-Market, and Earnings Price in the Cross-Section of Expected Stock Returns
This paper reexamines the explanatory power of beta, firm size, book-to-market equity, and the earnings-price ratio for average stock returns, correcting two currently controversial biases: selection bias in COMPUSTAT and the errors-in-variables (EIV) bias. After filling in the missing data on COMPUSTAT with the Moody's sample, I do not find any significantly different results for book-to-market equity from using the COMPUSTAT sample only. After correcting for the EIV bias, I find stronger support for the beta pricing theory than previous studies. Regardless of the presence of firm size, book-to-market equity, and earnings-price ratios, betas have significant explanatory power for average stock returns. In particular, firm size is barely significant using monthly returns, but no longer significant using quarterly returns. However, book-to-market equity still has significant explanatory power for average stock returns, even though the EIV bias is corrected.
Volume (Year): 32 (1997)
Issue (Month): 04 (December)
|Contact details of provider:|| Postal: Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK|
Web page: http://journals.cambridge.org/jid_JFQ
When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:32:y:1997:i:04:p:463-489_00. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters)
If references are entirely missing, you can add them using this form.