Book to market


Also found in: Acronyms.

Book to market

The ratio of book value to market value of equity. A high ratio is often interpreted as a value stock (the market is valuing equity relatively cheaply compared to book value). This is the same as a low price-to-book value ratio. Value managers often form portfolios of securities with high book to market values.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
Ventru un esantion de 2865 firme londoneze in perioada 2005-2013, determinantii investitiilor au fost obtinuti folosind modele de regresie, rezultand urmatoarele grupuri de variabile explicative: 1) vanzari, book to market ratio (raportul dintre valoarea de piata si valoarea contabila), fluxul de numerar, efectul de levier si numerar activ; 2) vanzari si book to market ratio; 3) vanzari; 4) efectul de levier.
Cuvinte-cheie: investittii, cheltuieli de capital, book to market, vanzari
The independent variables are: book to market, cash flow, cash to asset, leverage and sales which are proxy for firm dimension.
They constructed a portfolio on the basis of size and Book to Market (BM), results of Fama-MacBeth regression model reported significant positive BM and significant negative size effect on equity returns.
Further they conclude, book to market compassion operating distress risk and on the other hand leverage deals with financial distress risk.
Dhatt, Kim, and Mukherji, [26]used size, book to market value, sales price and debt equity ratio for studying Korean market from 1982 to 1992.
Fama and French argue that high average returns on small cap stocks and high book to market ratio stocks reflect unidentified state variables that produce non diversifiable risks in returns and that are not captured by the market return and are priced separately from market beta.
Concerning the latter premium, Fama and French (1998) tested their multi factor model in thirteen countries over the period 1975-1995 and found out that 12 out of 13 studied countries recorded a value premium of 7.68% per year to value high book to market equity ratio stocks.
The momentum effect is distinct from the value effect captured by book to market equity and other price ratios.
Fama and French (2008b, p.2973) explain the motivation for using the book to market ratio as a proxy for a factor which affects expected returns by noting that the dividend per share is earnings per share less the change in book value per share.
In addition, we find that the fact that the definition of return contains the book to market ratio and market size (and thus the Fama and French (1993) mimicking factors) from two successive time periods offers a partial explanation for the well known serial correlation of returns (e.g.
Lewellen (2002) finds that momentum is so pervasive that it shows up in portfolios sorted on book to market and size; as well as in portfolios sorted on industry.