Cookies?
Library Header Image
LSE Research Online LSE Library Services

Scale or yield? A present-value identity

Cho, Thummim, Kremens, Lukas, Lee, Dongryeol and Polk, Christopher ORCID: 0009-0008-0133-6709 (2024) Scale or yield? A present-value identity. Review of Financial Studies, 37 (3). 950 – 988. ISSN 0893-9454

[img] Text (Scale_or_Yield__A_Present_Value_Identity) - Accepted Version
Repository staff only until 23 February 2026.

Download (543kB)

Identification Number: 10.1093/rfs/hhad068

Abstract

We propose a loglinear present-value identity in which investment (“scale”), profitability (“yield”), and discount rates determine a firm’s market-to-book ratio. Our identity reconciles existing influential market-to-book decompositions and facilitates novel insights from three empirical applications: (1) Both investment and profitability are important contributors to the value spread and stock return news variance. (2) Any cross-sectional return predictability has a mirror image in cash-flow fundamentals, providing asset pricing theories with additional moments to match. (3) The investment spread significantly improves the predictability of time-series variation in the value premium and justifies the poor performance of value in recent years.

Item Type: Article
Official URL: https://academic.oup.com/rfs
Additional Information: © 2023 The Author(s)
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited: 20 Nov 2023 16:03
Last Modified: 06 Dec 2024 03:30
URI: http://eprints.lse.ac.uk/id/eprint/120804

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics