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Firm size, book-to-market ratio, and security returns: a holdout sample of financial firms

Article Abstract:

Fama and French (1992) document a significant relation between firm size, book-to-market ratios, and security returns for nonfinancial firms. Because of their initial interest in leverage as an explanatory variable for security returns, Fama and French exclude from their analysis financial firms, thus creating a natural holdout sample on which to test the robustness of their results. We document that the relation between firm size, book-to-market ratios, and security returns is similar for financial and nonfinancial firms. In addition, we present evidence that survivorship bias doe snot significantly affect the estimated size or book-to-market premiums in returns. Our results indicate data-snooping and selection biases do not explain the size and book-to-market patterns in returns. (Reprinted by permission of the publisher.)

Author: Barber, Brad M., Lyon, John D.
Publisher: Blackwell Publishers Ltd.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1997
Corporate size

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Resolving the puzzling intertemporal relation between the market risk premium and conditional market variance: a two-factor approach

Article Abstract:

The existing empirical literature fails to agree on the nature of the intertemporal relation between risk and return. This paper attempts to resolve the issue by estimating a conditional two-factor model motivated by Merton's intertemporal capital asset pricing model. When long-term government bond returns are included as a second factor, the partial relation between the market risk premium and conditional market variance is found to be positive and significant. The paper also helps explain the convoluted empirical relation between the market risk premium, conditional market variance, and the nominal risk-free rate previously reported in the literature. (Reprinted by permission of the publisher.)

Author: Scruggs, John T.
Publisher: Blackwell Publishers Ltd.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1998
Risk (Economics), Financial markets, Capital assets pricing model, Capital asset pricing model

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Subjects list: Research, Return on investment, Rate of return
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