The book-to-market ratio, B/M, is a noisy measure of expected stock returns because B/M also varies with expected cashflows. Our hypothesis is that the evolution of B/M, in terms of past changes in book equity and price, contains independent information about expected cashflows that can be used...

We study how migration of firms across size and value portfolios contributes to the size and value premiums in average stock returns. The size premium is almost entirely due to the small stocks that earn extreme positive returns and as a result become big stocks. The value premium has three...

The anomalous returns associated with net stock issues, accruals, and momentum are pervasive; they show up in all size groups (micro, small, and big) in cross-section regressions, and they are also strong in sorts, at least in the extremes. The asset growth and profitability anomalies are less...

We break average returns on value and growth portfolios into dividends and three sources of capital gain, (i) growth in book equity primarily due to earnings retention, (ii) convergence in price-to-book ratios (P/B) due to mean reversion in profitability and expected returns, and (iii) upward...

We examine (i) how value premiums vary with firm size, (ii) whether the CAPM explains value premiums, and (iii) whether in general average returns compensate beta in the way predicted by the CAPM. Loughran's (1997) evidence for a weak value premium among large firms is special to 1963-1995, U.S....

Valuation theory says that expected stock returns are related to three variables: the book-to-market equity ratio (B/M), expected profitability, and expected investment. Given B/M and expected profitability, higher rates of investment imply lower expected returns. But controlling for the other...

Financing decisions seem to violate the central predictions of the pecking order model about how often and under what circumstances firms issue equity. Specifically, most firms issue or retire equity each year, the issues are on average large, and they are not typically done by firms under...

Average returns on value and growth portfolios are broken into dividends and three sources of capital gain: (1) growth in book equity, primarily from earnings retention, (2) convergence in price-to-book ratios (P/Bs) from mean reversion in profitability and expected returns, and (3) upward drift...

Migration of stocks across size and value portfolios contributes to the size and value premiums in average stock returns. The size premium is almost entirely generated by the small-capitalization stocks that earn extreme positive returns and thus become big-cap stocks. The value premium comes...

We estimate the equity premium using dividend and earnings growth rates to measure the expected rate of capital gain. Our estimates for 1951 to 2000, 2.55 percent and 4.32 percent, are much lower than the equity premium produced by the average stock return, 7.43 percent. Our evidence suggests...