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...

Daniel and Titman (2006) propose that the value premium is due to investors overreacting to in- tangible information. They therefore decompose five-year changes in firms' book-to-market ratios into stock returns and a residual that is a proxy for tangible information based on accounting...