An Examination Of The Risk Return Profile And The Market's Collective Judgment Of Those Firms Identified By Value Line As Having The Highest Market Value To Book Value Ratios

摘要

The ratio of market value to replacement costs was introduced by James Tobin in 1968, and has been the subject of considerable financial research as well as use by financial and investment professionals in financial markets since that introduction. The ratio of market price to the replacement value of assets (Tobin's q) is said to have informational content. A value lower than unity indicates that assets may have better alternative uses. That is, unless those assets create at least as much market value as the cost of replacing them, the assets would be better employed elsewhere. However, determining the replacement value of assets can be challenging and studies have come to rely on the simpler market value/book value of total assets. This simpler or adjusted form is used by Value Line, and has become more popular in financial literature. In its revised form, the ratio has been used to separate "value" from "glamour" stocks, and to explain differences in stock returns. The purpose of this study is to investigate the relationship between the Value Line measure and coinciding measures of risk, return, and the collective judgment of the market, all of which determine the value of the firm. As in previous studies of this nature multiple discriminant analysis (MDA) is used.