专家意见系列2: Why Use Book Value to Sort Stocks?

ctcld

Eugene F. Fama The Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business

Kenneth R. French The Carl E. and Catherine M. Heidt Professor of Finance at the Tuck School of Business at Dartmouth College

Data from Ken French's website shows that sorting stocks on E/P or CF/P data produces a bigger spread than BtM over the last 55 years. Wouldn't it make sense to use these other factors in addition to BtM to distinguish value from growth stocks?

EFF/KRF: A stock's price is just the present value of its expected future dividends, with the expected dividends discounted with the expected stock return (roughly speaking). A higher expected return implies a lower price. We always emphasize that different price ratios are just different ways to scale a stock's price with a fundamental, to extract the information in the cross-section of stock prices about expected returns. One fundamental (book value, earnings, or cashflow) is pretty much as good as another for this job, and the average return spreads produced by different ratios are similar to and, in statistical terms, indistinguishable from one another. We like BtM because the book value in the numerator is more stable over time than earnings or cashflow, which is important for keeping turnover down in a value portfolio.

Nevertheless, there are problems in all accounting variables and book value is no exception, so supplementing BtM with other ratios can in principal improve the information about expected returns. We periodically test this proposition, so far without much success.

Construction:                
The Fama/French factors are constructed using the 6 value-weight portfolios formed on size and book-to-market. (See the description of the 6 size/book-to-market portfolios.)
                  
SMB (Small Minus Big) is the average return on the three small portfolios minus the average return on the three big portfolios,
                  
                
        SMB =1/3 (Small Value + Small Neutral + Small Growth) - 1/3 (Big Value + Big Neutral + Big Growth).         
                  
HML (High Minus Low) is the average return on the two value portfolios minus the average return on the two growth portfolios,
                  
                
        HML =1/2 (Small Value + Big Value) - 1/2 (Small Growth + Big Growth).         
                  
                 Rm-Rf, the excess return on the market, is the value-weight return on all NYSE, AMEX, and NASDAQ stocks (from CRSP) minus the one-month Treasury bill rate (from Ibbotson Associates).
                  
                 See Fama and French, 1993, "Common Risk Factors in the Returns on Stocks and Bonds," Journal of Financial Economics, for a complete description of the factor returns.
                  
Stocks:                
Rm-Rf includes all NYSE, AMEX, and NASDAQ firms. SMB and HML for July of year t to June of t+1 include all NYSE, AMEX, and NASDAQ stocks for which we have market equity data for December of t-1 and June of t, and (positive) book equity data for
t-1.

wyjhyd

6th-Sense

匪兵甲

看了一遍，二懂二不懂。。。anyway, how should these terms be used practically?