Journal of Financial Economics Vol. 100 No. 2 2011
Firm life expectancy and the heterogeneity of the book-to-market effect☆
open access
Abstract
I argue that the reason the book-to-market effect is stronger in small stocks is because smaller stocks generally have shorter life expectancy and therefore shorter equity duration. I build a model in which the book-to-market effect is stronger in stocks with shorter life expectancy. Empirically, I use delisting probability as my proxy for life expectancy. The data support my model's central prediction and its additional implications for stock return and variance. My results provide a rational explanation for the heterogeneity of the book-to-market effect, evidence previously taken as support for behavioral explanations.
- DOI
- 10.1016/j.jfineco.2010.12.007
- Volume
- 100
- Issue
- 2
- Pages
- 402-423
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref