Book-to-Market Equity, Distress Risk, and Stock Return In Taiwan and U.S.

• Main Authors: Chung-Hom Cheng, 陳俊宏
• Other Authors: Hung-Chih Li
• Format: Others
• Language: en_US
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/44914460327994982665

碩士 === 國立成功大學 === 財務金融研究所 === 94 === Abstract This study mainly adopts listed and OTC stock markets in Taiwan and Russell 1000 of the US as samples of research from May 1. 1991 to April 30. 2005. and from July 1. 1991. to June 30. 2005. We intend to discuss whether there are differences of the return on investment between stocks with different styles and features. This study adopts the methodology of Griffin and Lemmon (2002) and Ohlson (1980). First, we locate the financial alarm model of Taiwan and calculate the probability of a financial crisis of different companies. Then we classify the stocks in three portions with “BE/ME” (30%, 40%, 30%) and define the highest 30% and the lowest 30% as the value stock and the growth stock respectively. In the next step, we divide each of the portions into 5 portions according to the risk of financial crisis. Altogether there are 15 portfolios, in which we discuss whether there is a difference in their performance. Then, we further discuss if there are distinct changes of the investment performance between large firms and small firms in this way of classification. Moreover, this study is an extension of the Fama and French (1995) three-factor model, bringing into account the financial distress risk (Griffin and Lemmon, 2002). This study tries to explain the sources of return of stock markets in Taiwan and the US and to provide a complete explanation for influences of the sources of return of stock markets in Taiwan and the US. With the classification according to “HML(book to market)” and “O-score”, when evaluating the influence of firm of SMB on the performance of investment, this study finds that regardless of the firm size, the return of value Stock is higher than the growth Stock. We find that the probability of a financial crisis is mainly negatively related to the stock return. Through comparing the differences between the market return of different portfolios in Taiwan. This study finds that regardless of the firm size, most of the value-type portfolios have a higher return than the market average, while the growth-type portfolios have less return than the market average. According to the demonstration results of the sources of return, either in the market of Taiwan or the American market, the four-factor model can provide a more complete explanation than the three-factor model of Fama and French. The results of both the MTB and BE/ME factors are positively related to the stock return; while the SMB is in negatively related to the stock return. The financial crisis is negatively related to the stock return.