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Industry-adjusted book-to-market ratio and value premium

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  • Kim, Jinyong
  • Kim, Yongsik
  • Lee, Seunghyun

Abstract

Given the finding that the recent decline in value premium is driven by structural disparities in the ratio of book-to-market value of equity (BE/ME) across industries, we propose re-evaluating the value premium based on the book value share-to-market value share ratio (BS/MS) within each industry. Using the Fama-MacBeth regression and portfolio analyses, we show that the industry-adjusted value premium based on the BS/MS criterion remains significant even in recent decades. BS/MS long-short portfolios deliver stronger alphas than conventional BE/ME strategies, which are robust to controlling for size, liquidity, turnover, idiosyncratic risk and the intangible-adjusted book-to-market ratio.

Suggested Citation

  • Kim, Jinyong & Kim, Yongsik & Lee, Seunghyun, 2025. "Industry-adjusted book-to-market ratio and value premium," Finance Research Letters, Elsevier, vol. 86(PA).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pa:s1544612325016010
    DOI: 10.1016/j.frl.2025.108347
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    References listed on IDEAS

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    1. Pham, Hieu & Doan Huynh Thu, Hoai & My, Su Ho Thi & Chau, Long Nguyen Thi & Hoang Bao, Tram Le, 2026. "Industry-specific effects of supplier payment strategies on financial performance: Evidence from Vietnam," Finance Research Letters, Elsevier, vol. 88(C).

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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