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| Author: | Fama, E.F. French, K.R. |
| Title: | Profitability, investment and average returns |
| Journal: | Journal of Financial Economics
2006 : DEC, VOL. 82:3, p. 491-518 |
| Index terms: | investments return on investment stock returns profitability equities valuation theories models |
| Language: | eng |
| Abstract: | According to valuation theory expected (here as: exp.) stock returns are related to three variables: i. the book-to-market equity ratio (Bt/Mt), ii. exp. profitability (as: prf.), and iii. exp. investment. Given Bt/Mt and exp. prf., higher exp. rates of investment imply lower exp. returns (as: rets). However, controlling for the other two variables, more profitable firms have higher exp. rets., as do firms with higher Bt/Mt. These predictions are confirmed herein. |
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