1 November 1993Financial Analysts JournalVolume 49, Issue 6
Accounting Fundamentals of the Book-to-Market Ratio
William H. Beaver
Stephen G. Ryan
The book-to-market ratio is a function of current and lagged changes in market value. The coefficients of correlations between book and market values decline smoothly toward zero as the lag increases. The magnitude and length of the lags are greater, the longer-lived a firm's assets. To understand current book-to-market ratios, one must consider movements in the market value of common equity over the past six years. In other words, market values of common equity lead the book value of common equity by as much as six years. This is striking evidence of the timeliness (or lack thereof) of book values based on historical cost accounting.
Read the Complete Article in Financial Analysts Journal
Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
7 pages doi.org/10.2469/faj.v49.n6.50ISSN/ISBN: 0015-198X
Functional cookies, which are necessary for basic site functionality like keeping you logged in, are always enabled.