The poor performance for acquirers, however, predominates among glamour bidders, or those firms with low book-to-market ratios
are also lower for urban and small city firms than rural firms.
If the assumption that institutional investors are more rational than investors in the equity market is correct, then this evidence suggests that risk is an important factor behind the higher expected returns that we observe for firms with higher book-to-market ratios
We are more interested to note that when we examine our sample by book-to-market ratios
, we find that glamour acquirers (BT[M.
These results are also consistent with the relatively high book-to-market ratios
reported in Table II and are in contrast to those found by Hertzel et al.
To translate these differences into betas for projects with below, typical, or above-average growth opportunities we measure unlevered firm betas at the 25th, 50th, and 75th percentile book-to-market ratios
for the industry.
In Fama and French (1993) they argue that three factors based on market returns, size, and book-to-market ratios
describe most of the cross-sectional variation in portfolio returns.
In additional tests, we find that the spread volatility premium is largest in stocks with the smallest market capitalization and the highest book-to-market ratios
Higher book-to-market ratios
(undervalued firms) and higher variations in returns (riskier firms) appear to lead to larger increases in short interest.
First, we subdivide the sample into groups based on: 1) their book-to-market ratios
(B/MV), 2) the level of Tobin's Q, and 3) their magnitudes of free cash flow.
The authors also show that glamour winners -- positive surprise firms with a sequence of past positive earnings surprises, higher past trading volume, and low book-to-market ratios
-- exhibit faster price reversals.
Can one use insider trading data along with information on P/E ratios, book-to-market ratios
, momentum, or dividend yields to improve investment results?