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The Fama and French evidence that high book-to-market firms outperform low book-to-market firms even after adjusting for beta means that _________. A) high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a unique risk factor B) low book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor C) either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor D) high book-to-market firms have more post-earnings drift

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sandlee09

Answer:

C)

Explanation:

This basically means that either high book-to-market firms are underpriced or the book-to-market ratio is a proxy for a systematic risk factor or in other words very volatile. This is because value managers or investors see this as the firm is trading very cheaply in the market, based on their overall firm's book value, and cheap prices bring in buyers which brings volatility.

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