Title: Market Reactions to Tangible and Intangible Information

Co-author: Sheridan Titman, University of Texas at Austin

Status: Published, Journal of Finance, August 2006

Abstract: The book-to-market effect is often interpreted as evidence of high expected returns on stocks of ``distressed'' firms with poor past performance. We dispute this interpretation. We find that while a stockís future return is unrelated to the firmís past accounting-based performance, it is strongly negatively related to the ``intangible'' return, the component of its past return that is orthogonal to the firmís past performance. Indeed, the book-to-market ratio forecasts returns because it is a good proxy for the intangible return. Also, a composite equity issuance measure, which is related to intangible returns, independently forecasts returns.

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