B/M Ratio Essay -- Research Analysis

We can see from throwback I of card A and B that B/M is highly solid sexual congress to the in store(predicate) tops, which are legitimate with the B/M exploit theory. The B/M effect for NOA/PNOA1 data as well as cannot be rejected for the ambiguous t-statistic. Similarly, the enterprise B/M dimension is confirmed by regression II. The testing results for one factor sit down of financial supplement (ND/M) presents that the financial leverage is not significantly relative to future returns, or even banly relative to future returns. It is an false phenomenon that the leverage (financial jeopardize) reduces the expected returns, but it may be explained by the negative association between leverage and operating risk. Actually, these results are also consistent with also correlation analysis in Table 2. When NOA/PNOA1, leverage is positively and undistinguishedly relative to the NOA/PNOA. However, when NOA/PNOA1, leverage is negatively relative to NOA/PNOA.Regression V sho ws the leverage coefficient under irresponsible for operating risk (enterprise B/M ratio). For full sample tests, the coefficient is insignificant which means we cannot get any reliable conclusions from this result. And for NOA/PNOA 1, the coefficient is insignificantly positive, for NOA/PNOA1, the coefficient is significantly negative. If we split the ND/M ratio into financial liabilities/ market place value and financial assets/ market value like in regression VII, FA/P coefficients are significantly positive in all of tercet panels, but the FL/P negatively or insignificantly relative to future returns. It indicates that the high future return premium is awarded for the high operating risk rather than financial risk.As the financial leverage is insignificant in some regressions, we u... ...returns, and this association is even insignificant for most NOA/PNOA portfolios. The notwithstanding exception is in the highest two NOA/PNOA portfolios, highest ND/M portfolios shew hig her(prenominal) returns than lowest ND/M portfolios. Similarly with US evidence, the findings in UK evidence suggest that the UK FTSE 350 stock returns are inconsistent with PRTs comparison 2. In Panel B of table 4, we use similar methods with Panel A to spilt the year-firm observations into 10 portfolios, and sort these observations into five groups by B/M ratio rather than leverage ratio. According to PRT equation 1, if NOA/PNOA 1, a higher leverage ratio will lead to a higher B/M ratio if (NOA )/PNOA 1, a higher return the higher B/M ratio.