Deep value stocks in the time period

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The results of the Fama and French study revealed that holding a portfolio of 200 of the highest (lowest) Book-to-market (Price-to-book) stocks over the period 1963-1990 yielded an average return that was nearly 3 times that of a portfolio with consistently the lowest (highest) B/M (P/B) stocks and also showed these "value" stocks had lower betas.

a. Briefly explain why stocks can trade so much below book value. Cite Haugen and Porter.

b. List four (4) specific concrete factors/events/explanations for the higher returns to the deep value stocks in the time period of the F&F study. Also, are these factors likely to repeat? Why, why not?

Reference no: EM132956758

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