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http://hdl.handle.net/11375/19067
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DC Field | Value | Language |
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dc.contributor.author | Balvers, Ronald J. | - |
dc.contributor.author | Gu, Li | - |
dc.contributor.author | Huang, Dayong | - |
dc.contributor.author | Michael Lee-Chin & Family Institute for Strategic Business Studies | - |
dc.date.accessioned | 2016-04-07T20:30:49Z | - |
dc.date.available | 2016-04-07T20:30:49Z | - |
dc.date.issued | 2015-06 | - |
dc.identifier.uri | http://hdl.handle.net/11375/19067 | - |
dc.description | 51 p. ; Includes bibliographical references (pp. 40-43). ; "June 3, 2015." ; The authors thank Andrew Ang, Sohn Bumjean, Ujjal Chatterjee, Ilan Cooper, Zhi Da, Fanchang Huang, Januj Juneja, Xiaoji Lin, Jianjun Miao, Jack Strauss, Yangru Wu, Hayong Yun, Lu Zhang, and seminar participants at the Central University of Finance and Economics, Fordham University, McMaster University, the Federal Reserve Bank at Richmond, and the 2013 FMA annual meeting in Chicago, the 2014 European Financial Management Association meeting in Rome, the 2014 World Finance Association in Venice, the 2014 China International Finance Conference in Chengdu, and the 2014 Southern Finance Association Annual Meeting in Key West for valuable comments. | en_US |
dc.description.abstract | In a production-based asset pricing model without adjustment costs and with decreasing returns to scale following Brock (1982), stock returns at the firm level are no longer identically equal to investment returns but are determined by profitability, the book-to-market ratio, and the change in future profitability prospects. Although firms with low book-to-market ratios are normally more profitable and profitable firms are predicted to have higher returns, the stylized fact that book-to-market ratios positively forecast returns still holds theoretically, but with specific predicted exceptions. These implications are confirmed empirically. Valuation Insight: Balvers, Gu, and Huang show that firms which can be classified as value firms in the sense of having high book-to-stock market ratios and high profitability are, indeed, expected to generate high future stock returns. But the reason for the positive performance lies in a high level of systematic risk stemming from the fact that it is risky investment projects generating the high profitability and that it is a large fraction of intangible assets, which have risky returns, that cause book values to be low compared to market values. | en_US |
dc.language.iso | en | en_US |
dc.relation.ispartofseries | Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper ; 2015-03 | - |
dc.subject | Profitability | en_US |
dc.subject | Stock returns | en_US |
dc.subject | Production-based asset pricing | en_US |
dc.subject | Investment returns | en_US |
dc.subject | Capacity utilization | en_US |
dc.subject | Decreasing returns to scale | en_US |
dc.title | Profitability, value and stock returns in production-based asset pricing without frictions | en_US |
dc.type | Working Paper | en_US |
dc.contributor.department | None | en_US |
Appears in Collections: | Michael Lee-Chin & Family Institute for Strategic Business Studies Working Paper Series |
Files in This Item:
File | Description | Size | Format | |
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sbv_wp_2015-03.pdf | 452.92 kB | Adobe PDF | View/Open |
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