Campbell, John Y, Jens Hilscher and Jan Szilagyi, 2005.

AppendixIn this appendix we discuss issues related to the construction of our dataset. Allvariables are constructed using COMPUSTAT and CRSP data. Relative size, excessreturn, and accounting ratios are defined as follows:RSIZE i,t =µFirm Market Equity i,tlogTotal S&P 500 Market Value tEXRET i,t = log(1+R i,t ) − log(1 + R S&P 500,t )NITA i,t =Net Income i,tT otal Assets(adjusted) i,tTLTA i,t =Total Liabilities i,tT otal Assets(adjusted) i,tNIMTA i,t =Net Income i,t(Firm Market Equity i,t + Total Liabilities i,t )TLMTA i,t =Total Liabilities i,t(Firm Market Equity i,t + Total Liabilities i,t )CASHMTA i,t =Cash and Short T erm Investments i,t(Firm Market Equity i,t + Total Liabilities i,t )The COMPUSTAT quarterly data items used are Data44 for total assets, Data69 fornet income, and Data54 for total liabilities.To deal with outliers in the data, we correct both NITA and TLTA using thedifference between book equity (BE) and market equity (ME) to adjust the value oftotal assets:Total Assets (adjusted) i,t = TA i,t +0.1 ∗ (BE i,t − ME i,t )Book equity is as defined in Davis, Fama and French (2000) and outlined in detail inCohen, Polk and Vuolteenaho (2003). This transformation helps with the values oftotal assets that are very small, probably mismeasured and lead to very large valuesof NITA. After total assets are adjusted, each of the seven explanatory variables iswinsorized using a 5/95 percentile interval in order to eliminate outliers.To measure the volatility of a firm’s stock returns, we use a proxy, centered aroundzero rather than the rolling three-month mean, for daily variation of returns computed26