The reliability of the book-to-market ratio as a risk proxy
DOI:
https://doi.org/10.1016/S1057-0810(01)00075-0Keywords:
Portfolio performance, Contrarian strategy, Market efficiency, Risk FactorsAbstract
This study examines whether the book-to-market ratio consistently explains the cross-section of stock returns through time. The results reveal that the book-to-market ratio is positively and signif- icantly related to return in only 43% of the monthly regressions. Other value/growth variables such as Cash Flow,” “Sales Growth,” and “Size”; perform even more erratically than the book-to-market ratio, and are thus less likely to be viewed as legitimate risk proxies. © 2001 Elsevier Science Inc. All rights reserved.
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