Fama and French (1992) found that the stocks of firms within the highest decile of book-to-market ratios had an average annual return of _______, while the stocks of firms within the lowest decile of book-to-market ratios had an average annual return of ________.
A) 15.6%; 13.1%
B) 17.2%; 11.1%
C) 13.2%; 16.4%
D) 11.1%; 17.2%

Question

Quizplus · Accepted Answer

Fama and French (1992) found that stocks of firms with the highest decile of book-to-market ratios (indicating they are potentially undervalued) had higher average annual returns (17.2%) compared to those in the lowest decile (indicating they are potentially overvalued) with an average annual return of 11.1%. This supports the value effect, where higher book-to-market ratios are associated with higher future returns.

Fama and French (1992) Found That the Stocks of Firms