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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To determine whether that is a plausible reason in the Brazilian market, the companies were divided in two groups according to their book-to-market ratios. Undervaluation is more likely to be a reason for high book-to-market companies (value companies) to repurchase.

Underreaction to open market share repurchases

Regarding the book-to-market ratio, we observe that funds capture the value premium with their VM trades, as they generally buy stocks with high book-to-market ratios and sell stocks with low ratios.

Mutual Fund Stock-Picking Skill: New Evidence from Valuation- versus Liquidity-Motivated Trading

To examine factors influencing and constraining the decision to recognize zero goodwill impairment, this study selected firms that encountered book-to-market ratios above one for three consecutive years.

AUDIT COMMITTEE INDEPENDENCE AND A CONTRACTING PERSPECTIVE ON GOODWILL IMPAIRMENT: SINGAPOREAN EVIDENCE

Fama and French (1998) conducted a study on the returns yielded by high book-to-market ratios and low book-to-market ratios.

Pairs trading and value investing strategies

In any event, assuming these two value approaches imply very different portfolios, the Research Affiliates paper tests a Eugene Portfolio that is long risky stocks and short safe stocks, but which is indifferent to book-to-market ratios.

Shiller vs. Fama: Which Nobel Winner Comes Out on Top?

Schall, "Book-to-Market Ratios as Predictors of Market Returns," Journal of Financial Economics, 49, no.

PEG investing strategy: a revisit

In order to focus attention on the difference between beta coefficients rather than differences in market capitalization and book-to-market ratios, we used the average values of market capitalization (ME) and the book-to-market ratio (BE/ME) for property-liability insurers for all cost of capital estimates shown in Table 5.

Estimating the cost of equity capital for property-liability insurers

We find that pro forma announcers tend to be relatively "young" firms that are concentrated primarily in the tech sector and business services industries, and that they are significantly less profitable, more liquid, and have higher debt levels, P-E ratios, and book-to-market ratios than other firms in their own industries.

Empirical evidence on recent trends in pro forma reporting

We also address a second question: Are accounting earnings-based risk measures incrementally associated with the market's assessment and pricing of equity risk beyond other observable risk factors, such as the three factors in the Fama and French (1992) model (market model beta, firm size, and book-to-market ratios)?

Residual income risk, intrinsic values, and share prices

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.

Free Cash Flow And Long-Run Firm Value: Evidence From The Value Line Investment Survey [*]

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.

Behavioral Finance

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?