Book-to-market ratio and skewness of stock returns

• Autores: Xiao-Jun Zhang
• Localización: Accounting review: A quarterly journal of the American Accounting Association, ISSN 0001-4826, Vol. 88, Nº 6, 2013, págs. 2213-2240
• Idioma: inglés
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• Resumen

  • 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.