Penman, S H, Reggiani, F, Richardson, S A and Tuna, I (2018) A framework for identifying accounting characteristics for asset pricing models, with an evaluation of book-to-price. European Financial Management, 24 (4). pp. 488-520. ISSN 1354-7798
Abstract
We provide a framework for identifying accounting numbers that indicate risk and expected return. Under specified accounting conditions for measuring earnings and book value, book‐to‐price (B/P) indicates expected returns, providing justification for B/P in asset pricing models. However, the framework also points to earnings‐to‐price (E/P) as a risk characteristic. Indeed, E/P, rather than B/P, is the relevant characteristic when there is no expected earnings growth, but the weight shifts to B/P with growth. Using this framework we resolve a puzzle: in contrast to previous empirical research, we find that leverage is positively associated with future returns, as predicted by theory.
More Details
Item Type: | Article |
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Subject Areas: | Accounting |
Additional Information: |
© 2018 John Wiley & Sons. This is the peer reviewed version of the following article: 'A framework for identifying accounting characteristics for asset pricing models, with an evaluation of book-to-price', S H Penman, F Reggiani, S A Richardson, and I Tuna, European Financial Management, 12 February 2018, which has been published in final form at https://doi.org/10.1111/eufm.12171. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
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Date Deposited: | 18 May 2018 14:14 |
Date of first compliant deposit: | 17 May 2018 |
Subjects: |
Accounting procedures Book-keeping |
Last Modified: | 02 Nov 2024 03:01 |
URI: | https://lbsresearch.london.edu/id/eprint/981 |