Book-To-Market across Firm Size, Exchange, and Seasonality: Is There an Effect?

Fama and French (1992) report that size and the book-to-market ratio capture the cross-sectional variation of average stock returns for the universe of NYSE, Amex, and Nasdaq securities. This paper, in providing an exhaustive exploration of book-to-market across the dimensions of firm size, exchange listing, and calendar seasonally, reports that Fama and French's empirical findings are driven by two features of the data: a January seasonal in the book-to-market effect, and exceptionally low returns on small, young, growth stocks. In the largest size quintile of all firms (accounting for 73% of the total market value of all publicly traded firms), book-to-market has no significant explanatory power on the cross-section of realized returns during the 1963–1995 period. Thus, book-to-market as such would have less importance to money managers than the literature would have led us to believe.