Question

The book-to-market effect implies that shares of companies with _____ ratios tend to _____ the market....

The book-to-market effect implies that shares of companies with _____ ratios tend to _____ the market.

a) low book-to-market; outperform

b) high P/E; underperform

c) high book-to-market; outperform

d) high P/E; outperform

e) high book-to-market; underperform

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Answer #1

The book-to-market effect implies that shares of companies with high book-to-market ratios tend to outperform the market.

Option c is correct.

Companies with high book-to-market ratios are considered cheap relative the price of the stock and hence they tend to outperform the market.

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