Dissecting value-growth strategies conditioned on expectation errors

Halil I. Memis and Ulrich Wessels

The Quarterly Review of Economics and Finance, 2024, vol. 93, issue C, 155-163

Abstract: We examine the previously documented effect between a firm’s FSCORE and book-to-market ratio proposed by Piotroski and So (2012) and analyze the authors’ expectation errors hypothesis from a present value perspective. We find a strong value premium which is concentrated among firms where book-to-market implied expectations are incongruent with underlying fundamental strength. Using the decomposition of variation in book-to-market ratios motivated by Cohen et al. (2003), we show that the observed effect between a firm’s FSCORE and book-to-market ratio is attributable to mispricing as the variation is mostly due to variation in expected returns rather than variation in expected profitability.

Keywords: Value; Mispricing; Decomposition, Stock returns; International markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:93:y:2024:i:c:p:155-163

DOI: 10.1016/j.qref.2023.11.009

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