Earnings persistence and the value premium
File(s)
Author(s)
Reibel, Andres
Type
Thesis
Abstract
For many years, academics have argued that firms with high book-to-market ratios yield higher returns
than firms with low book-to-market ratios (i.e. the value premium). While there is agreement that a book-
to-market based value strategy produces superior returns, academics have neglected to research whether the
value premium is a function of other rm characteristics. In this dissertation it is shown that the book-to-
market ratio is a function of earnings persistence. Evidence is provided that the value premium in low earnings
persistence portfolios is higher because investors misjudge earnings persistence and not because this value strategy
is fundamentally riskier.
than firms with low book-to-market ratios (i.e. the value premium). While there is agreement that a book-
to-market based value strategy produces superior returns, academics have neglected to research whether the
value premium is a function of other rm characteristics. In this dissertation it is shown that the book-to-
market ratio is a function of earnings persistence. Evidence is provided that the value premium in low earnings
persistence portfolios is higher because investors misjudge earnings persistence and not because this value strategy
is fundamentally riskier.
Version
Open Access
Date Issued
2014-03
Date Awarded
2014-11
Copyright Statement
Attribution NoDerivatives 4.0 International Licence (CC BY-ND)
Advisor
David, McCarthy
James, Sefton
Sponsor
Imperial College London
Publisher Department
Business School
Publisher Institution
Imperial College London
Qualification Level
Doctoral
Qualification Name
Doctor of Philosophy (PhD)