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Intangible Assets, Book‐To‐Market, And Common Stock Returns

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  • James M. Nelson

Abstract

I examine two anomalies where the Fama and French three‐factor model fails to adequately explain monthly industry and index returns. Both anomalies are consistent with a bad model problem where the book‐to‐market factor introduces a negative bias in the intercepts. I propose the intangibles model as an alternative where the three‐factor model is known to have difficulty. This alternative model, which replaces the book‐to‐market factor with zero investment portfolio returns based on prior investments in intangible assets, is well specified in random samples, has comparable power, and fully explains both anomalies.

Suggested Citation

  • James M. Nelson, 2006. "Intangible Assets, Book‐To‐Market, And Common Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 29(1), pages 21-41, March.
    • Handle: RePEc:bla:jfnres:v:29:y:2006:i:1:p:21-41
    DOI: 10.1111/j.1475-6803.2006.00164.x
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    Cited by:

    1. Kenneth E Scislaw & David G McMillan, 2012. "The search for an exploitable value premium in market indexes," Journal of Asset Management, Palgrave Macmillan, vol. 13(4), pages 253-270, August.
    2. Sarishma Sharma & Khushdeep Dharni, 2020. "Measurement and reporting of intangible assets: orientation of Indian practitioners," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 47(2), pages 125-135, June.
    3. Kenneth E. Scislaw & David McMillan, 2015. "The value premium within and across GICS industry sectors in a pre-financial collapse sample," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1045214-104, December.

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