TITLE

Book-to-Market Ratio and Skewness of Stock Returns

AUTHOR(S)
Xiao-Jun Zhang
PUB. DATE
November 2013
SOURCE
Accounting Review;Nov2013, Vol. 88 Issue 6, p2213
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This study demonstrates that stocks with low book-to-market ratios, also known as glamour stocks, have significantly more positive skewness in their return distributions compared to the return distributions of value stocks with high book-tomarket ratios. The premium (discount) investors apply to these glamour (value) stocks also correlates significantly with the difference in return skewness. These findings suggest that the value/glamour-stock puzzle is partially explained by investor preference for positive skewness in stock returns. Such preference for skewness, which is consistent with investors having inverse S-shaped utility functions, is observed in such consumer behaviors as lottery purchases and gambling. This paper further documents significant predictive power of accounting-based measures, such as the book rate of return, with respect to the skewness of stock returns.
ACCESSION #
91960049

 

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