The Other Side of Value: Good Growth and the Gross Profitability Premium
NBER Working Paper No. 15940 Profitability, as measured by gross profits-to-assets, has roughly the same power as book-to-market predicting the cross-section of average returns. Profitable firms generate significantly higher average returns than unprofitable firms, despite having, on average, lower book-to-markets and higher market capitalizations. Controlling for profitability also dramatically increases the performance of value strategies, especially among the largest, most liquid stocks. These results are difficult to reconcile with popular explanations of the value premium, as profitable firms are less prone to distress, have longer cashflow durations, and have lower levels of operating leverage, than unprofitable firms. Controlling for gross profitability explains most earnings related anomalies, as well as a wide range of seemingly unrelated profitable trading strategies. This paper is available as PDF (670 K) or via email
Machine-readable bibliographic record - MARC, RIS, BibTeX Document Object Identifier (DOI): 10.3386/w15940 Published: Novy - Marx, Robert, “The Other Side of Value: The Gross Profitability Premium , ” Journal of Financial Economics, 108(1) , 1 - 28, 2013. Users who downloaded this paper also downloaded* these:
|
Contact Us
