ABSTRACT This paper lays out a decomposition of book‐to‐price (B/P) that derives from the accounting for book value and articulates precisely how B/P “absorbs” leverage. The ratio can be decomposed into an enterprise (that pertains to operations potentially reflects operating risk) leverage component financing risk). empirical analysis shows is positively related subsequent stock returns but, conditional upon book‐to‐price, negatively associated with future returns. Further, both explain...

Security regulators and the business press have alleged that firms play an 'earnings-guidance game' where analysts make optimistic forecasts at start of year then 'walk down' their estimates to a level firm can beat by end year. In comprehensive sample I/B/E/S individual analysts' annual earnings from 1983-1998, we find strong support for claim in post-1992 period. We examine whether beatable targets is associated with managers' incentives sell stock after announcements on firm's behalf (via...

This paper tests the hypothesis that irrational market misvaluation affects firms' takeover behavior. We employ two contemporaneous proxies for misvaluation, pre-takeover book/price ratios and of residual income model value to price. Misvaluation bidders targets influences means payment chosen, mode acquisition, premia paid, target hostility offer, likelihood offer success, bidder announcement period stock returns. The evidence is broadly supportive hypothesis.

Following Sloan (1996), numerous studies show that the accrual component of earnings is less persistent than cash flow earnings. Disagreement exists, however, as to explanation for this result. Xie (2001) attributes result managerial discretion. Fairfield et al. (2003a) argue it a special case more general growth anomaly attributable widespread use conservative accounting methods and/or diminishing marginal returns new investment. Finally, Dechow and Dichev (2002) Richardson (2004)...

This paper examines the dynamic behavior of analysts' earnings forecasts over twelve months preceding annual announcements. We investigate claim that analysts make optimistic at start year and then 'walk down' their estimates to a level firm is likely beat by end year. The sample consists I/B/E/S individual-analyst for period 1983-1997. In post-1992 period, we find strong evidence switch from upward-biased downward-biased as announcement date approaches. Forecast pessimism strongest high...

We examine whether fundamental measures of volatility are incremental to market-based in (i) predicting bankruptcies (out sample), (ii) explaining cross-sectional variation credit spreads, and (iii) future excess returns. Our include historical profitability, margins, turnover, operating income growth, sales growth; dispersion analyst forecasts earnings; quantile regression the interquartile range distribution profitability. find robust evidence that these improve out-of-sample bankruptcy...

ABSTRACT We present a simple, linear asset pricing model of the cross section Mortgage‐Backed Security (MBS) returns. MBS earn risk premia as compensation for their exposure to prepayment risk. measure and estimate loadings using forecasts versus realizations. Estimated on decrease monotonically in securities' coupons relative par coupon, consistent with predicted effect bond value. Prepayment appears be priced by specialized investors. The price changes sign over time representative...

Abstract We offer several suggestions for researchers using corporate bond return data. First, despite clear instructions from older papers (e.g., Bessembinder et al., The Review of Financial Studies 22:4219–4258, 2009) about ways to compute credit excess returns, a lot recent research simply subtracts Treasury Bill return. show that this imprecision is likely contaminate inferences, as the rate component returns negatively correlated spread component. This problem all looking at especially...

We develop a comprehensive and parsimonious measure of the extent to which firm is raising (distributing) capital from (to) market participants. show that relation between our net external financing future stock returns stronger than has been documented in previous research focusing on individual categories transactions. Decompositions reveal additional insights. First, weaker results are attributable 'refinancing' transactions having no change financing. Second, after controlling for...

Value investing involves buying securities that appear cheap relative to some fundamental anchor. For equity investors, anchor is typically a measure of intrinsic value linked financial statements. Recently, much has been written about the death investing. Although undoubtedly many approaches have suffered recently, authors find suggestion dead be premature. Both from theoretical and empirical perspective, expectations information continue an important driver security returns. The also...

The authors synthesized and extended recent research demonstrating that investor recognition is a distinct, significant determinant of stock price movements. Realized returns are strongly positively related to changes in recognition, expected negatively the level recognition. Moreover, companies time their financing investing decisions exploit Investor dominates movements over short horizons, whereas fundamentals dominate longer horizons.

We find that four well-known characteristics (carry, defensive, momentum and value) explain a significant portion of the cross-sectional variation in corporate bond excess returns. These have positive risk-adjusted expected returns are not subsumed by traditional market premia or respective equity anomalies. The economically significant, explained macroeconomic exposures, there is some evidence mispricing plays role, especially for momentum.

Deleveraging risk is the attributable to investing in a security held by levered investors. When there an aggregate negative shock availability of funding capital, securities with greater presence investors experience extreme return realizations as these unwind their positions. Using data on equity loans proxy for degree positions given stock, we find robust evidence deleveraging risk. Stocks high short selling large positive returns and decrease around periods capital scarcity.

Prior research has documented the empirical regularity that more firms than expected (i) report small positive earnings and (ii) have zero forecast errors. It appears management avoid reporting negative or disappointing analysts. We investigate how why beat these benchmarks (benchmark beaters).

This paper lays out a decomposition of book-to-price (B/P) that articulates precisely how B/P "absorbs" leverage. The ratio can be decomposed into an enterprise (that pertains to operations and potentially reflects operating risk) leverage component financing risk). empirical analysis shows the is positively related subsequent stock returns but, conditional upon book-to-price, negatively associated with future returns. Further, both explain over those Fama French nominated factors -...

The paper presents an accounting framework for identifying characteristics that indicate expected returns. A model links returns to earnings and growth, so a characteristic indicates if it growth the market prices as being at risk. In applying framework, confirms book-to-price (B/P) valid in asset pricing: B/P is associated with higher also captures risk of not realized. However, points forward earning-to-price (E/P) characteristic. Indeed, E/P, rather than B/P, relevant when there no but...

Style investing has become part of the nomenclature for equity markets. To date, despite massive size fixed-income markets, little research examined efficacy style-based in fixed income. In this article, authors summarize a common framework capturing excess returns both government and corporate bonds. Importantly, from an investor perspective, these are highly diversifying with respect to classic risk premiums markets (i.e., term premium credit premium) exhibit low macroeconomic...

Despite theoretical and intuitive reasons for a credit risk premium, past research has found little supporting empirical evidence. This is primarily attributable to biases in computing excess returns, which improperly account term risk. Using data spanning 80 years the United States nearly 20 Europe, authors find strong evidence of premium after correctly adjusting The not spanned by other known premia, it exhibits time variation related economic growth aggregate default rates. These results...