Dissecting Market Expectations in the Cross-Section of Book-to-Market Ratios: A Comment

Bryan Kelly, Seth Pruitt

Research output: Contribution to journalArticlepeer-review

Abstract

Souza (2022) replicates the findings of Kelly and Pruitt (2013), then critiques their findings with alternative empirical choices. We challenge this critique, and argue that the choices of Kelly and Pruitt (2013, 2015) are the natural economic and statistical choices. The attenuation of predictability in Souza's (2022) empirical analysis is due primarily to a number of ill-advised implementation choices. We conclude that the results of Kelly and Pruitt (2013) are notably robust in the sample following publication of their paper.

Original languageEnglish (US)
Pages (from-to)373-381
Number of pages9
JournalCritical Finance Review
Volume11
Issue number2
DOIs
StatePublished - May 3 2022
Externally publishedYes

Keywords

  • Partial least squares
  • Present value model
  • Return prediction
  • Three-pass regression filter

ASJC Scopus subject areas

  • Finance

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