Going by the Book: Valuation Ratios and Stock Returns

I explore how institutional frictions interact with the changing nature of the book value of equity to impact stock returns. I first find that book-to-market is relatively less informative of future returns when it significantly deviates from other valuation multiples, and employing refined signals improve return predictability. Then, I find that a firm’s stock returns are still strongly correlated with its book-to-market portfolio returns even when book-to-market is less informative. Together, my findings suggest that institutional investors follow “brand indices” that overweight firms’ book-to-market to attract capital, which induces excess correlations along the book-to-market dimension, even when book-to-market is less informative of long-term future returns.

Name thesis:degree_name

Master

Department dc:contributor.department

Sloan School of Management

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2021

Author dc:creator

• Choi, Ki-Soon

Advisor dc:contributor.advisor

• So, Eric C. (Of Massachusetts Institute of Technology)

Statement dc:rights

• In Copyright - Educational Use Permitted
• Copyright MIT

Licence dc:rights.uri

• http://rightsstatements.org/page/InC-EDU/1.0/

Handle dc:identifier.uri

https://hdl.handle.net/1721.1/139273

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/139273