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Book-to-market effect and product life cycle

Author

Listed:
  • Ming-Che Hu

    (Chung Yuan Christian University)

  • Alex YiHou Huang

    (National Yang Ming Chiao Tung University)

  • Yanzhi Wang

    (National Taiwan University)

  • Dan-Liou Yu

    (National Yang Ming Chiao Tung University)

Abstract

This paper examines the relationship between product life cycle and book-to-market effect on cross-sectional stock returns. While previous papers suggest that the book-to-market effect is related to a firm’s market value and fundamental value, this paper examines the product life cycle, which directly affects future cash flows. We find that the book-to-market effect is stronger for firms with a long product life cycle, which is consistent with the mispricing story in explaining the book-to-market effect. We further find that the role of product life cycle is more critical for firms with high investor limited attention, and that the product life cycle in part explains intangible returns.

Suggested Citation

  • Ming-Che Hu & Alex YiHou Huang & Yanzhi Wang & Dan-Liou Yu, 2024. "Book-to-market effect and product life cycle," Review of Quantitative Finance and Accounting, Springer, vol. 63(2), pages 551-577, August.
    • Handle: RePEc:kap:rqfnac:v:63:y:2024:i:2:d:10.1007_s11156-024-01270-8
    DOI: 10.1007/s11156-024-01270-8
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    More about this item

    Keywords

    Book-to-market; Product life cycle; Stock returns;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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