Table A2 Variable definitions a...

Table A2

Variable definitions^a

Variables used in the main test
AssetGrowth	Change in the natural logarithm of assets per split-adjusted share
Beta-CMA	Factor loading^b on the conservative-minus-aggressive factor
Beta-HML	Factor loading on the high-minus-low factor
Beta-MktRf	Factor loading on the market factor
Beta-MOM	Factor loading on the momentum factor
Beta-RMW	Factor loading on the robust-minus-weak factor
Beta-SMB	Factor loading on the small-minus-big factor
IB/BE (profitability)	Income before extraordinary items divided by book equity at the beginning of the year
IVOL (idiosyncratic volatility)	Standard deviation of residuals from a regression that takes daily excess returns as a function of daily excess market returns and daily returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors
B/M	Natural logarithm of the ratio of the book value of equity to the market value of equity
LnP/V(t) (overvaluation likelihood)	Difference between the natural logarithm of the market value of equity on 06/30 of t and the natural logarithm of the estimated intrinsic value of equity obtained using the latest accounting information available by 06/30 of t. Estimation details are in Appendix 1
LnP/V(t):Qi	An indicator variable that equals 1 if LnP/V(t) is in the i-th annual quintile (0 otherwise), i = 1 to 5
Momentum	Stock return over the 11-month period ending on 05/31 of t
NegIB (loss)	An indicator variable that equals 1 if income before extraordinary items is negative (0 otherwise)
NetStkIssue (net stock issues)	Change in the natural logarithm of split-adjusted shares outstanding from 06/30 of t − 1 to 06/30 of t
NegTtlAcc (negative total accruals)	TtlAcc for firms with negative accruals (0 otherwise)
PosIB/BE (positive profitability)	IB/BE for firms with positive IB/BE (0 otherwise)
PosTtlAcc (positive total accruals)	TtlAcc for firms with positive accruals (0 otherwise)
$R_{t \to t + 1}$	Stock return over 07/01 of t to 06/30 of t + 1, t = 1966 to 2015
Size	Natural logarithm of the market value of equity on 06/30 of t
TtlAcc (total accruals)	Change in operating working capital per split-adjusted share divided by total assets per split-adjusted share
ZeroNetStkIssue	An indicator variable that equals 1 if NetStkIssue equals 0 (0 otherwise)
Other variables
AbsAutoCorr	Absolute value of the first-order autocorrelation of daily returns, computed using data from 07/01 of t − 1 to 06/30 of t
AvgPrice	Average of Price(t) and Price(t + 1)
AvgSizePct	Annual rank of the average of firm size on 06/30 of t and firm size on 06/30 of t + 1, scaled to have a minimum of 0 and a maximum of 1
$C M A_{t \to t + 1}$	Annualized return to the conservative-minus-aggressive (CMA) factor over 07/01 of t to 06/30 of t + 1
$H M L_{t \to t + 1}$	Annualized return to the high-minus-low (HML) factor over 07/01 of t to 06/30 of t + 1
IVOL3MON	Standard deviation of residuals from a regression that takes daily excess returns as a function of daily excess market returns and daily returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors, computed using daily data from 04/01 of t through 06/30 of t
IVOL5Year	Standard deviation of residuals from a regression that takes monthly excess returns as a function of monthly excess market returns and monthly returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors, computed using monthly data from 07/01 of t − 5 through 06/30 of t with at least 12 observations
$I V O L : Q i$	The i-th quintile of $I V O L$ ⁠, i = 1 to 5
$L n R_{t \to t + 1}$ (continuously compounded return)	Natural logarithm of 1 plus $R_{t \to t + 1}$ ⁠, where $R_{t \to t + 1}$ is stock return over 07/01 of t to 06/30 of t + 1
$M O M_{t \to t + 1}$	Annualized return to the momentum (MOM) factor over 07/01 of t to 06/30 of t + 1
MTB(t) (market-to-book)	Ratio of the market value of equity on 06/30 of t to the latest book value of equity available by 06/30 of t
MTB(t):Qi	An indicator variable that equals 1 if MTB(t) is in the ith annual quintile (0 otherwise), i = 1 to 5
P/V-F&L(t) (the price-to-value ratio)	Ratio of the market value of equity on 06/30 of t to the estimated intrinsic value of equity (V-F&L) that is obtained by incorporating model-based earnings predictions and the industry-specific cost of equity into the empirically tractable version of the residual income valuation model introduced in Frankel and Lee (1998). We adopt Hou, van Dijk, and Zhang's (2012) model-based approach to forecasting earnings and apply Fama and French's (1993) three-factor model to estimate the industry-specific cost of equity
P/V-F&L(t):Qi	An indicator variable that equals 1 if P/V-F&L(t) is in the ith annual quintile (0 otherwise), i = 1 to 5
PctChgV	Percentage change in the estimated intrinsic value of equity from 06/30 of t to 06/30 of t + 1
Price(t) (ex ante stock price)	Stock price on 06/30 of t
Price(t + 1) (ex post stock price)	Stock price on 06/30 of t + 1
PriceDelay	1 - (R² of the restricted model/R² of the non-restricted model), where the non-restricted model is specified as $r_{i, l} = α_{i} + β_{i} R_{m, l} + \sum_{n = 1}^{4} δ_{i}^{(- n)} R_{m, l - n} + ε_{i, l}$ ⁠, r_i,l is the return on stock i in week l, R_m,l is the return for the CRSP value-weighted market index in week l, and the restricted model constrains $δ_{i}^{(- n)} = 0$
ProfitabilityShock	Difference between profitability of t + 1 and the expected profitability of t + 1 obtained using the method introduced in Hou and van Dijk (2019)
$R_{f, t \to t + 1}$	Annualized one-month T-bill rate over 07/01 of t to 06/30 of t + 1
$R_{M, t \to t + 1}$	Annualized return on the market portfolio over 07/01 of t to 06/30 of t + 1
RetSkewness	Return skewness computed using daily return data from 04/01 of t to 06/30 of t
$R i s k A d j R_{t \to t + 1}$ (risk-adjusted return)	Computed as $R_{i, t \to t + 1} - R_{f, t \to t + 1} - (b_{i} \times (R_{m, t \to t + 1} - R_{f, t \to t + 1}) + s_{i} \times S M B_{t \to t + 1} + h_{i} \times H M L_{t \to t + 1} + m_{i} \times M O M_{t \to t + 1} + r_{i} \times R M W_{t \to t + 1} + c_{i} \times C M A_{t \to t + 1})$ where $i$ is firm $i$ ⁠; $R_{i, t \to t + 1}$ is the stock return over 07/01 of t through 06/30 of t + 1 for firm $i$ ⁠; $R_{f, t \to t + 1}$ is the annualized one-month T-bill rate over the same period; $R_{M, t \to t + 1}$ is the annualized return on the market portfolio over the same period; $S M B_{t \to t + 1}$ / $H M L_{t \to t + 1}$ / $M O M_{t \to t + 1}$ / $R M W_{t \to t + 1}$ / $C M A_{t \to t + 1}$ is the annualized return to the small-minus-big/high-minus-low/momentum/robust-minus-weak/conservative-minus-aggressive factor over the same period; $b_{i}$ ⁠, $s_{i}$ ⁠, $h_{i}$ ⁠, $m_{i}$ ⁠, $r_{i}$ ⁠, and $c_{i}$ are factor loadings obtained using daily return data from 07/01 of t through 06/30 of t + 1
$R M W_{t \to t + 1}$	Annualized return to the robust-minus-weak (RMW) factor over 07/01 of t to 06/30 of t + 1
SizePct(t)	Annual rank of firm size on 06/30 of t, scaled to have a minimum of 0 and a maximum of 1
SizePct(t + 1)	Annual rank of firm size on 06/30 of t + 1, scaled to have a minimum of 0 and a maximum of 1
$S M B_{t \to t + 1}$	Annualized return to the small-minus-big (SMB) factor over 07/01 of t to 06/30 of t + 1
$S t d L n R_{t \to t + 1}$	Standardized $L n R_{t \to t + 1}$ with a mean of 0 and a standard deviation of 1
$S t d R_{t \to t + 1}$	Standardized $R_{t \to t + 1}$ with a mean of 0 and a standard deviation of 1
StkLiq (stock liquidity)	−1 x the natural logarithm of Abdi and Ranaldo's (2017) effective bid-ask spread estimate, computed using daily close, high, and low prices from 07/01 of t − 1 to 06/30 of t

Variables used in the main test
AssetGrowth	Change in the natural logarithm of assets per split-adjusted share
Beta-CMA	Factor loading^b on the conservative-minus-aggressive factor
Beta-HML	Factor loading on the high-minus-low factor
Beta-MktRf	Factor loading on the market factor
Beta-MOM	Factor loading on the momentum factor
Beta-RMW	Factor loading on the robust-minus-weak factor
Beta-SMB	Factor loading on the small-minus-big factor
IB/BE (profitability)	Income before extraordinary items divided by book equity at the beginning of the year
IVOL (idiosyncratic volatility)	Standard deviation of residuals from a regression that takes daily excess returns as a function of daily excess market returns and daily returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors
B/M	Natural logarithm of the ratio of the book value of equity to the market value of equity
LnP/V(t)(overvaluation likelihood)	Difference between the natural logarithm of the market value of equity on 06/30 of t and the natural logarithm of the estimated intrinsic value of equity obtained using the latest accounting information available by 06/30 of t. Estimation details are in Appendix 1
LnP/V(t):Qi	An indicator variable that equals 1 if LnP/V(t) is in the i-th annual quintile (0 otherwise), i = 1 to 5
Momentum	Stock return over the 11-month period ending on 05/31 of t
NegIB (loss)	An indicator variable that equals 1 if income before extraordinary items is negative (0 otherwise)
NetStkIssue (net stock issues)	Change in the natural logarithm of split-adjusted shares outstanding from 06/30 of t − 1 to 06/30 of t
NegTtlAcc (negative total accruals)	TtlAcc for firms with negative accruals (0 otherwise)
PosIB/BE (positive profitability)	IB/BE for firms with positive IB/BE (0 otherwise)
PosTtlAcc (positive total accruals)	TtlAcc for firms with positive accruals (0 otherwise)
$R_{t \to t + 1}$	Stock return over 07/01 of t to 06/30 of t + 1, t = 1966 to 2015
Size	Natural logarithm of the market value of equity on 06/30 of t
TtlAcc (total accruals)	Change in operating working capital per split-adjusted share divided by total assets per split-adjusted share
ZeroNetStkIssue	An indicator variable that equals 1 if NetStkIssue equals 0 (0 otherwise)
Other variables
AbsAutoCorr	Absolute value of the first-order autocorrelation of daily returns, computed using data from 07/01 of t − 1 to 06/30 of t
AvgPrice	Average of Price(t) and Price(t + 1)
AvgSizePct	Annual rank of the average of firm size on 06/30 of t and firm size on 06/30 of t + 1, scaled to have a minimum of 0 and a maximum of 1
$C M A_{t \to t + 1}$	Annualized return to the conservative-minus-aggressive (CMA) factor over 07/01 of t to 06/30 of t + 1
$H M L_{t \to t + 1}$	Annualized return to the high-minus-low (HML) factor over 07/01 of t to 06/30 of t + 1
IVOL3MON	Standard deviation of residuals from a regression that takes daily excess returns as a function of daily excess market returns and daily returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors, computed using daily data from 04/01 of t through 06/30 of t
IVOL5Year	Standard deviation of residuals from a regression that takes monthly excess returns as a function of monthly excess market returns and monthly returns to the small-minus-big, high-minus-low, momentum, robust-minus-weak, and conservative-minus-aggressive factors, computed using monthly data from 07/01 of t − 5 through 06/30 of t with at least 12 observations
$I V O L : Q i$	The i-th quintile of $I V O L$ , i = 1 to 5
$L n R_{t \to t + 1}$ (continuously compounded return)	Natural logarithm of 1 plus $R_{t \to t + 1}$ , where $R_{t \to t + 1}$ is stock return over 07/01 of t to 06/30 of t + 1
$M O M_{t \to t + 1}$	Annualized return to the momentum (MOM) factor over 07/01 of t to 06/30 of t + 1
MTB(t)(market-to-book)	Ratio of the market value of equity on 06/30 of t to the latest book value of equity available by 06/30 of t
MTB(t):Qi	An indicator variable that equals 1 if MTB(t) is in the ith annual quintile (0 otherwise), i = 1 to 5
P/V-F&L(t)(the price-to-value ratio)	Ratio of the market value of equity on 06/30 of t to the estimated intrinsic value of equity (V-F&L) that is obtained by incorporating model-based earnings predictions and the industry-specific cost of equity into the empirically tractable version of the residual income valuation model introduced in Frankel and Lee (1998). We adopt Hou, van Dijk, and Zhang's (2012) model-based approach to forecasting earnings and apply Fama and French's (1993) three-factor model to estimate the industry-specific cost of equity
P/V-F&L(t):Qi	An indicator variable that equals 1 if P/V-F&L(t) is in the ith annual quintile (0 otherwise), i = 1 to 5
PctChgV	Percentage change in the estimated intrinsic value of equity from 06/30 of t to 06/30 of t + 1
Price(t) (ex ante stock price)	Stock price on 06/30 of t
Price(t + 1) (ex post stock price)	Stock price on 06/30 of t + 1
PriceDelay	1 - (R² of the restricted model/R² of the non-restricted model), where the non-restricted model is specified as $r_{i, l} = α_{i} + β_{i} R_{m, l} + \sum_{n = 1}^{4} δ_{i}^{(- n)} R_{m, l - n} + ε_{i, l}$ , r_i,l is the return on stock i in week l, R_m,l is the return for the CRSP value-weighted market index in week l, and the restricted model constrains $δ_{i}^{(- n)} = 0$
ProfitabilityShock	Difference between profitability of t + 1 and the expected profitability of t + 1 obtained using the method introduced in Hou and van Dijk (2019)
$R_{f, t \to t + 1}$	Annualized one-month T-bill rate over 07/01 of t to 06/30 of t + 1
$R_{M, t \to t + 1}$	Annualized return on the market portfolio over 07/01 of t to 06/30 of t + 1
RetSkewness	Return skewness computed using daily return data from 04/01 of t to 06/30 of t
$R i s k A d j R_{t \to t + 1}$ (risk-adjusted return)	Computed as $R_{i, t \to t + 1} - R_{f, t \to t + 1} - (b_{i} \times (R_{m, t \to t + 1} - R_{f, t \to t + 1}) + s_{i} \times S M B_{t \to t + 1} + h_{i} \times H M L_{t \to t + 1} + m_{i} \times M O M_{t \to t + 1} + r_{i} \times R M W_{t \to t + 1} + c_{i} \times C M A_{t \to t + 1})$ where $i$ is firm $i$ ; $R_{i, t \to t + 1}$ is the stock return over 07/01 of t through 06/30 of t + 1 for firm $i$ ; $R_{f, t \to t + 1}$ is the annualized one-month T-bill rate over the same period; $R_{M, t \to t + 1}$ is the annualized return on the market portfolio over the same period; $S M B_{t \to t + 1}$ / $H M L_{t \to t + 1}$ / $M O M_{t \to t + 1}$ / $R M W_{t \to t + 1}$ / $C M A_{t \to t + 1}$ is the annualized return to the small-minus-big/high-minus-low/momentum/robust-minus-weak/conservative-minus-aggressive factor over the same period; $b_{i}$ , $s_{i}$ , $h_{i}$ , $m_{i}$ , $r_{i}$ , and $c_{i}$ are factor loadings obtained using daily return data from 07/01 of t through 06/30 of t + 1
$R M W_{t \to t + 1}$	Annualized return to the robust-minus-weak (RMW) factor over 07/01 of t to 06/30 of t + 1
SizePct(t)	Annual rank of firm size on 06/30 of t, scaled to have a minimum of 0 and a maximum of 1
SizePct(t + 1)	Annual rank of firm size on 06/30 of t + 1, scaled to have a minimum of 0 and a maximum of 1
$S M B_{t \to t + 1}$	Annualized return to the small-minus-big (SMB) factor over 07/01 of t to 06/30 of t + 1
$S t d L n R_{t \to t + 1}$	Standardized $L n R_{t \to t + 1}$ with a mean of 0 and a standard deviation of 1
$S t d R_{t \to t + 1}$	Standardized $R_{t \to t + 1}$ with a mean of 0 and a standard deviation of 1
StkLiq (stock liquidity)	−1 x the natural logarithm of Abdi and Ranaldo's (2017) effective bid-ask spread estimate, computed using daily close, high, and low prices from 07/01 of t − 1 to 06/30 of t

Note(s): ^aUnless stated otherwise, all variables are computed using the latest accounting and market information available by 06/30 of t

^bThese factor loadings and IVOL are computed using daily data from 07/01 of t − 1 to 06/30 of t, t = 1966 to 2015

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