Earnings, retained earnings, and book-to -market in the cross section of expected returns

• 成果类型: Article
• 署名作者: Ball, Ray; Gerakos, Joseph; Linnainmaa, Juhani T.; Nikolaev, Valeri
• 署名单位: University of Chicago; Dartmouth College; University of Southern California; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2019.05.013
• 发表日期: 2020
• 页码: 231-254
• 关键词: BOOK-TO-MARKET; Contributed capital; Earnings yield; Mispricing Retained earnings; VALUE PREMIUM

摘要

Book value of equity consists of two economically different components: retained earnings and contributed capital. We predict that book-to-market strategies work because the retained earnings component of the book value of equity includes the accumulation and, hence, the averaging of past earnings. Retained earnings-to-market predicts the cross section of average returns in U.S. and international data and subsumes book-to-market. Contributed capital-to-market has no predictive power. We show that retained earnings-to-market, and, by extension, book-to-market, predicts returns because it is a good proxy for underlying earnings yield (Ball, 1978; Berk, 1995) and not because book value represents intrinsic value. (C) 2019 Elsevier B.V. All rights reserved.