The book-to-market equity ratio as a proxy for risk: evidence from Australian markets

Dempsey, Michael

doi:10.1177/0312896209351451

Cited by 30 publications

(27 citation statements)

References 32 publications

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“…The results of recent survey confirmed previous results that the B\M ratio is positively related to stock returns [27]. However, [28] found that the B/M ratio has a principal role in the formation of sock returns, and the relationship between stock returns and B/M ratio due to the attraction of B/M ratio to the implications of market leverage that include the risk factors, which play the effective roles in stock return predictability. Therefore, the B/M as a predictor has an explosive impact on stock returns.…”

Section: Book-to-market Ratio (B/m) and Stock Returnsupporting

confidence: 78%

Stock Return Predictability with Financial Ratios

Kheradyar¹,

Ibrahim²,

Nor³

2011

IJTEF

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Abstract-This paper studies whether financial ratios can predict stock returns for the period from January 2000 to December 2009 in Malaysia stock exchange. We select three financial ratios include dividend yield (DY), earning yield (EY) and book-to-market ratio (B/M) that have been documented to predict stock returns. This study applies generalized least squares (GLS) techniques to estimate the predictive regressions in form of simple and multiple models of panel data sets. The obtained results reveal that the financial ratios can predict stock return, as the B/M has the higher predictive power than DY and EY respectively. Furthermore, the financial ratios are able to enhance stock return predictability when the ratios are combined in the multiple predictive regression model. Index Terms-Financial ratios, Stock return predictability, Predictive regression, Malaysia stock exchange.

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Section: Book-to-market Ratio (B/m) and Stock Returnsupporting

confidence: 78%

Stock Return Predictability with Financial Ratios

Kheradyar¹,

Ibrahim²,

Nor³

2011

IJTEF

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“…3 The current paper complements and extends the analysis of Chiah et al (2016) in a number of ways. First, whereas Chiah et al (2016) are primarily concerned with comparing the "fit" of the five-factor model to three-factor and 1 See, for example, Halliwell et al (1999), Gaunt (2004), Faff (2004), Demir et al (2004), Dempsey (2010), Galariotis (2010), and Brailsford et al (2012b). 2 For example, the fit of an asset pricing model is examined in a multivariate context using the Gibbons et al (1989) F andHansen (1982) J tests, whilst the average R 2 across test assets is a more-crude measure of fit.…”

Section: Introductionmentioning

confidence: 99%

“…See, for example, Halliwell et al (), Gaunt (), Faff (), Demir et al (), Dempsey (), Galariotis (), and Brailsford et al ().…”

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Explaining Anomalies in Australia with a Five‐factor Asset Pricing Model

Huynh

2017

Int Rev Finance

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This paper compares the ability of three‐factor and five‐factor asset pricing models to explain the apparent profitability of a broad selection of anomalies in Australian equity returns. Rather than examining the fit of each model to common test portfolios, our focus is on the spread return to long–short trading strategies designed around so‐called anomalies. After documenting significant spread returns to 16 anomalies (including several not previously studied in Australia), the empirical analysis provides cautious support that the recently‐proposed investment and profitability factors have a role to play. The number of anomalies that remains after risk adjustment decreases under the five‐factor model. Further, while the magnitude of reduction in alpha is modest, our testing shows that it is statistically significant in many cases. However, both three‐factor and five‐factor models repeatedly fail the Gibbons, Ross, and Shanken's (1989) (GRS) test, suggesting that the quest for a better asset pricing model is not yet complete.

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“…In the above model, leverage (LEV) is used as a measure of risk and a control variable similar to Dempsey (2010).…”

Section: Methodsmentioning

confidence: 99%

Analysis of Hidden Value and Value Relevance of Financial Statements Pre- and Post-IFRS Adoption

Garg¹

2017

JMAA

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This study analyses the hidden value and value relevance of financial statements pre-and post-IFRS (International Financial Reporting Standards) adoption. Prior studies on IFRS adoption provide conflicting evidence on value relevance. Market-to-book ratio and IFRS adoption value relevance using price is examined for Australian listed firms. Results show that IFRS adoption is value relevant over a longer period of time. Results are opposite for profit-making firms compared to loss-making firms which may explain the conflicting results. In the presence of goodwill, IFRS is not value relevant when post-global financial crisis (GFC) period is included. Market-to-book ratio has increased in the post-IFRS period lowering the usefulness of financial statements. Moreover, results show that macro-economic changes affecting valuation of firms may explain for differences in the results for market-to-book ratio and value relevance in different jurisdictions and time periods. Keywords: goodwill, hidden value, International Financial Reporting Standards (IFRS), impairment, value relevance IntroductionSeveral studies around the world have examined the benefits of International Financial Reporting Standards (IFRS) adoption. But the results from these studies provide conflicting evidence. This makes it difficult to draw definitive conclusions about the benefits of IFRS adoption. Different regimes have used varying approaches on goodwill recognition prior to IFRS adoption. Therefore, while IFRS adoption had a uniform impact on the way goodwill is reported and impaired, in the pre-IFRS regime, there are differences across jurisdictions that adopted IFRS.In Australia, a key difference in IFRS is the impairment of goodwill as opposed to systematic amortization as in previous years. This study tries to examine the reason behind the inconclusive results using goodwill and segregation of firms based on profitability as key accounting items. The value relevance of IFRS is analysed over a longer period of time. Moreover, the study examines the usefulness of financial statements pre-and post-IFRS adoption and explores whether the usefulness has increased or decreased over a longer period of time.Market-to-book ratio of the Standard & Poor's 500 over the past two decades rose from just over one in the early eighties to a peak of six by 2000, falling back to 4.5 by late (Beattie & Thomson, 2005. Such large changes in the difference between market value of equity and book value of equity suggest over the last 20 years that the usefulness of financial accounting has reduced significantly. Lev (2002) suggested that the difficulty of valuing firms that deal with concepts, rather than tangible assets and growing size makes an Mukesh Garg, Lecturer, Department of Accounting, Monash University. Email: mukesh.garg@monash.edu. economy more susceptible to Enron type collapses. Lev and Zarowin (1999) provided evidence which indicates that the usefulness of reported earnings, cash flows, and book (equity) values has been deteriorating over the past two...

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The book-to-market equity ratio as a proxy for risk: evidence from Australian markets

Cited by 30 publications

References 32 publications

Stock Return Predictability with Financial Ratios

Stock Return Predictability with Financial Ratios

Explaining Anomalies in Australia with a Five‐factor Asset Pricing Model

Analysis of Hidden Value and Value Relevance of Financial Statements Pre- and Post-IFRS Adoption

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