The Other Side of Value: Good Growth and the Gross Profitability Premium / Robert Novy-Marx.

Format:

Book

Author/Creator:

Novy-Marx, Robert.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15940.

NBER working paper series no. w15940

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

The Other Side of Value

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

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.

Notes:

Print version record

April 2010.