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Disentangling Equity Return Regularities 87
an updated study of industry-relative P/E ratios, see Goodman and
Peavy (1983). For a test that circumvents potential CAPM pitfalls, see
Levy and Lerman (1985). For a practitioner’s view, see Dreman
(1982).
8. For evidence on the size effect, see Banz (1981); Brown, Kleidon, and
Marsh (1983); and Reinganum (1983~). For an overview of some sizerelated
anomaly issues, see Schwert (1983). For a discussion of
transaction costs as a potential explanation, see Stoll and Whaley
(1983) and sd.lultz (1983). For evidence that the size anomaly is not a
proxy for industry effects, see Carleton and Lakonishok (1986). For a
discussion of deficient risk adjustment, see Roll (1981); Reinganum
(1982); Booth and Smith (1985); Chan and Chen (1986); Ferson,
Kandel, and Stambaugh (1987); and Handa; Kothari, and Wasley
(1987). Blume and Stambaugh (1983) and Roll (1983~) find the size
effect halved in magnitude when the bid/ask bias in daily pricing is
controlled for, while Amihud and Mendelson (1983) it find totally
subsumed. For a discussion of the size effect in an APT framework,
see endnote 1.
9. Shefrin and Statman (1984) articulate theories of choice behavior that
lead to results contrary to standard financial theory.
10. Black and Scholes (1974) and Miller and Scholes (1982) find an effect
not significantly different from zero. Litzenberger and Ramaswamy
(1979) report a significant and positive relationship between yield
and return. Blume (1980) finds a discontinuity, with zero-yielding
stocks earning an abnormally high return.
11. Keim (1985) shows the entire nonlinear yield anomaly to occur in the
month of January.
12. For a theoretical model of the neglect effect, see Merton (1987~).
13. Stoll and Whaley (1983) report the low-price effect to be almost as
powerful as the small-size effect.
14. Senchack and Martin (1987) test this claim and find eamings/price
superior. It was reported that sales/price is sigruficant in a
multifactor framework at the BARRA Research Seminar, Berkeley,
California, June 1986.
15. BARRA has tested this measure contemporaneously with E/P,
sales/price, and book/price, and finds it significant; reported at the
BARRA Research Seminar, Berkeley, California, June 1986.
16. If investors do not hold well-diversified portfolios, they may
demand compensation for bearing residual risk [Levy (1978) and
Mayshar (198l)l. However, price volatility confers on the taxable
investor a valuable timing option for recognizing losses short term