The Accounting Review Vol. 88 No. 6 2013
Book-to-Market Ratio and Skewness of Stock Returns
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-to-market 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. Data Availability: Data are available from sources identified in the paper.
- DOI
- 10.2308/accr-50524
- Volume
- 88
- Issue
- 6
- Pages
- 2213-2240
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref