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The residual (ϵ i,t ) is computed from the regression of the excess return on the contemporaneous market excess return for security i in period t . The term ϵ m,t is the market return in period t in excess of average market return.
44 Our data consist of the stock universe consisting of all the stocks on the NYSE, American Stock Exchange, and NASDAQ for the 26-year period from January 1991 through August 2017. We collected monthly returns from Morningstar Direct. We included stocks with an initial price greater than $5 in each period. We excluded derivative securities of foreign stocks, such as ADRs. January 1991 covers 833 stocks, and August 2017 covers 2,219 stocks.
45 http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html .
46 The WRDS (Wharton Research Data Services) website is at wrds-web.wharton.upenn. edu. CRSP (Center for Research in Security Prices) data are from the University of Chicago, Booth School of Business. The Compustat data are from Standard & Poor’s, which is a division of the McGraw-Hill Companies.
47 The inclusion criteria for stocks were as follows: common stocks listed on the New York Stock Exchange, the American Stock Exchange and successor exchanges, or the NASDAQ exchange but excluding real estate investment trusts, warrants, American depositary receipts, exchange-traded funds, Americus Trust components, and closed-end funds. Data for trading volume, total returns, earnings, shares outstanding, and price had to be available for the 12 months of the selection year. The stock price at the end of the selection year had to be at least $2. Finally, the market cap of included companies had to rank within the largest 3,000 for the year and exceed a fixed fraction of the aggregate market cap at year end, equal to that of a $140 million company at the end of 2014.
48 In particular, we did not include Fama–French regression coefficients because they may not be indicative of underlying characteristics, such as size or value.
49 See Note 21 in Chapter 2 .
50 IK included return on equity (ROE) as a measure of value. Because ROE is based on book value, however, rather than market value (as is the case with both B/M and E/P), we do not regard it as a measure of value. Furthermore, because the market cap or share price of a stock is the denominator in B/M and E/P and market cap is an indirect indicator of popularity, B/M and E/P are clearly related to popularity.
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