Strategy #0000000015 · Value and fundamental factors
Book-to-price value
Rank firms by book equity relative to market value; cheap is a signal, not a promise.
Book-to-price divides book equity by market value. At each rebalance, the strategy buys higher-ratio stocks and sells lower-ratio stocks to test a relative-value spread.
Compares book equity with market value; a cheap rank does not ensure a rebound.
Three ways in
Understand the story. Then inspect the risk.
Start with a familiar situation, check the payoff, then test how the numbers change.
The idea · in two minutes
Jack compares how much book equity sits behind each pound of market value
Two firms each report £10 of book equity, but the market values them at £20 and £50. Their B/P ratios are 0.50 and 0.20, so Jack ranks the first as cheaper. That is a relative ranking, not a forecast of which share will rise next year.
On each formation date, a researcher uses financial statements already public at that time and current market values, then buys a high-ratio group and sells a low-ratio group. A long-short spread helps separate the signal from a broad market rally.
Rose points out that book equity is an accounting stock. Intangibles, goodwill impairments, buybacks and industry asset mix can distort comparisons, while a low valuation can reflect real deterioration. Point-in-time data, delistings, borrow costs and long periods of underperformance all matter.
- 高 B/P 多頭組Teaching assumption: the cheap group returns +6% for one period.
- 低 B/P 空頭組Teaching assumption: the expensive group returns −2%, contributing +2% to the short spread.
- 多空組合扣成本6% − (−2%) − assumed 0.4% cost = 7.6%; arithmetic illustration only.
Illustrative research examples only. They are not live signals or a recommendation.
The mechanics · payoff and exposure
Use book equity that was public at formation divided by market equity, then form portfolios by cross-sectional ranks.
BE is common book equity aligned to its public release date; ME is market equity at formation. H−L is the return of the high-B/P group minus the low-B/P group. TC includes trading, borrow and funding costs. Portfolio breakpoints and rebalance frequency are part of the specification.
Greeks: the directional intuition
- Value spread
- Measures sensitivity to implied volatility.
- Momentum
- Measures sensitivity to implied volatility.
- Liquidity
- Measures sensitivity to implied volatility.
Use book equity that was public at formation divided by market equity, then form portfolios by cross-sectional ranks.
Practical context · published observations
High-minus-low B/P: read the record with its caveats.
The chart uses the published figures or explicitly labelled study inputs below. A historical index or model replay is not the same as an investor’s realised account return.
沒有使用點時財報和可交易歷史價格；數值為明列假設。真實重建需處理公告延遲、退市、分組、空頭和成本。 Source ↗ · Methodology ↗
Change assumptions and inspect the scenario
Inputs illustrate the strategy mechanics; they are not live quotes, forecasts or investment advice.
Variants · same family, different risk levers
Value signals differ by accounting numerator and market.
The common mechanism is relative valuation; cash flow, earnings, payouts, enterprise value and cross-asset versions change the numerator or universe.
| Related strategy | Relationship | What changes | New cost or risk |
|---|---|---|---|
| Book-to-market (Stattman / Fama–French) | Core accounting value | Ranks common book equity relative to market equity. | Book value omits many internally created intangibles and must be point-in-time aligned. |
| Cash-flow-to-price | Operating cash-flow value | Ranks operating cash flow relative to market value. | Cash flow is cyclical and working-capital or investment changes can distort one year. |
| Earnings-to-price | Earnings yield | Uses earnings relative to price, often excluding negative earnings. | Peak-cycle earnings can look unsustainably cheap; exclusions change the universe. |
| Enterprise multiple | Enterprise valuation | Compares enterprise value with an operating measure. | Near-zero or negative denominators and debt/cash definitions can destabilise ranks. |
| Net payout yield | Shareholder payout | Combines dividends and net repurchases relative to equity value. | Repurchase timing, issuance and financing cycles affect the signal. |
| Composite value | Multiple valuation ratios | Combines ranks from book, earnings or cash-flow yields. | Correlated inputs, missing values and scaling can dominate the result. |
| International value | Cross-market extension | Applies relative valuation to country equities, currencies or commodities. | Accounting, market rules, FX and sampling frequencies differ. |
| Buy/hold spread | Turnover control | Uses a wider holding threshold and sells only after a material rank deterioration. | Lower turnover can delay exiting a firm whose fundamentals have worsened. |
Use statements only after their public release. These are representative implementations, not a full dictionary of all 39 catalogue signals.
Read beyond the summary
References
Primary sources and research used to describe the strategy and its limits.
- 01Fama & French (1992), The Cross-Section of Expected Stock Returns.research
- 02Lakonishok, Shleifer & Vishny (1994), Contrarian Investment, Extrapolation, and Risk.research
- 03Novy-Marx & Velikov (2016), A Taxonomy of Anomalies and Their Trading Costs.research
- 04Chen & Zimmermann, Open Source Cross-Sectional Asset Pricing.dataset
- 05Kakushadze & Serur (2018), 151 Trading Strategies, §3.3.source