Book-to-Market Ratio


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Book-to-Market Ratio

A ratio of a publicly-traded company's book value to its market value. That is, the BTM is a comparison of a company's net asset value per share to its share price. This is a useful tool to help determine how the market prices a company relative to its actual worth. A ratio greater than one indicates an undervalued company, while a ratio less than one means a company is overvalued. Value managers seek out companies with high BTMs for their portfolios.
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Recent studies suggest that firm size and the book-to-market ratio (BM) are the most significant factors in explaining variations in cross-sectional returns (Fama and French, 1992, 1996).
As an approximate reciprocal of the book-to-market ratio, the bidder q coefficient shows a negative sign, consistent with the findings for the book-to-market ratio.
We estimate alphas from the Fama-French (1993) three-factor model (FF-TFPM) over three years, and classify them by form of transaction, mode of payment, type of activity, target nation, announcement period abnormal returns, and the book-to-market ratio.
The regressions also control for previously documented predictors of long-term returns identified by the asset pricing literature, market value and the book-to-market ratio.
Barra ranks firms in the S&P 500 index by book-to-market ratio and categorizes the firms into two equal market capitalization groups.
As we mentioned earlier, we use the book-to-market ratio as a proxy for the ratio of the value of assets-in-place to the total value of the firm, [A.
RSI is the relative short interest defined as short-interest divided by the number of shares outstanding, PR1Y is the cumulative returns of lagged one year, BM is the book-to-market ratio of stocks, CAP is the market capitalization in millions of U.
For the book-to-market ratio, I use the prior fiscal year's book value (defined as Compustat book value of equity plus balance sheet deferred taxes and investment credit minus the book value of preferred stock) scaled by the end of December year t - 1 CRSP market value of equity.
Specifically, after controlling for the log of book-to-market ratio and the log of market capitalization, the average one-year-ahead net profit margins for firms ranked at the top of the investor relations rankings is 5.
Both panels present frequencies conditional on nonmissing data for both market capitalization and the book-to-market ratio.
And when the field of companies is reduced to just those with a low book-to-market ratio, those companies outperformed their peers by 45 percent in four years, said David Ikenberry, a finance professor at Rice University in Texas and co-author of ``Market Underreaction To Open Market Share Repurchases.
While aggregate measures such as the market's overall book-to-market ratio can contain predictive information, we find significantly more predictability when using price ratios of individual stocks," Kelly explained.