Does Book-to-Market Equity Proxy for Distress Risk or Overreaction ?

@inproceedings{Griffin2000DoesBE,
  title={Does Book-to-Market Equity Proxy for Distress Risk or Overreaction ?},
  author={John M. Griffin and Michael Lemmon},
  year={2000}
}
This paper tests risk and overreaction explanations of the book-to-market equity (BE/ME) premium in returns by focusing on the joint relationship between distress and BE/ME. Within the most distressed firms, the difference in returns between high and low book-to-market securities is more than twice as large as that in non-distressed firms, and is largely driven by extremely low returns on firms with low BE/ME. These large return differentials cannot be explained by risk as captured by the Fama… CONTINUE READING

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