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RAUSP Management Journal

versão On-line ISSN 2531-0488


ARAUJO, Rebeca Cordeiro da Cunha  e  MACHADO, Márcio André Veras. Book-to-Market Ratio, return on equity and Brazilian Stock Returns. RAUSP Manag. J. [online]. 2018, vol.53, n.3, pp.324-344. ISSN 2531-0488.


This study aims to analyze the influence of future expectations of the book-to-market ratio (B/M) and return on equity (ROE) in explaining the Brazilian capital market returns.


The study analyzed the explanatory power of risk-factor approach variables such as beta, size, B/M ratio, momentum and liquidity.


The results show that future expectations of the B/M ratio and ROE, when combined with proxies for risk factors, were able to explain part of the variations of Brazilian stock returns. With respect to risk factors approach variables, the authors verified the existence of size and B/M effects and a liquidity premium in the Brazilian capital market, during the period analyzed.

Research limitations/implications

This research was limited to the non-financial companies with shares traded at Brasil, Bolsa and Balcão, from January 1, 1995 to June 30, 2015. This way, the conclusions reached are limited to the sample used herein.

Practical implications

The evidences herein presented can also contribute to establishing investment strategies, considering that the B/M ratio may be calculated through accounting information announced by companies. Besides, using historical data enable investors, in a specific year, to calculate the predictor variables for the B/M ratio and ROE in the next year, which enhance the explanatory power of the current B/M, when combined in the form of an aggregate predictor variable for stock returns.


The main contribution of this study to the literature is to demonstrate how the expected future B/M ratio and ROE may improve the explanatory capacity of the stock return, when compared with the variables traditionally studied in the literature.

Palavras-chave : Anomalies; Risk factors; Return on equity; Fundamental valuation; Book-to-market ratio.

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