Electronic Resource
Oxford, UK
:
Blackwell Publishing Ltd
Journal of business finance & accounting
21 (1994), S. 0
ISSN:
1468-5957
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Economics
Notes:
Several studies in financial economics have found a positive relationship between stock returns and firm size. This relationship persists even after controlling for various measures of risk. There is also a well documented inverse relationship between stock returns and the Price/Earnings (P/E) ratio. However, there is still substantial controversy whether the size effect subsumes the P/E effect or vice versa. In this paper, we demonstrate that neither the size nor the P/E effect subsumes the other. We introduce Tobin's q as a variable that is closely related to stock returns as well as to both the size and P/E effects and show that the size effect persists after controlling for both P/E and q, while the P/E effect becomes much smaller after controlling for size and q. This leads us to conclude that the size effect is more robust to additional controls such as Tobin's q than the P/E effect. Finally, the size effect is almost entirely a January phenomenon whereas the P/E effect is a non-January effect.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1468-5957.1994.tb00308.x
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