

Variable
Definitions
ME 

Market Equity. Market equity (size) is price times
shares outstanding. Price and shares outstanding are from CRSP. 



BE 

Book Equity. Book equity is constructed
from Compustat data or collected from the Moody’s Industrial, Financial,
and Utilities manuals. BE is the book value of stockholders’ equity,
plus balance sheet deferred taxes and investment tax credit (if
available), minus the book value of preferred stock. Depending on
availability, we use the redemption, liquidation, or par value (in
that order) to estimate the book value of preferred stock. Stockholders’
equity is the value reported by Moody’s or Compustat, if it is available.
If not, we measure stockholders’ equity as the book value of common
equity plus the par value of preferred stock, or the book value
of assets minus total liabilities (in that order). See Davis, Fama,
and French, 2000, “Characteristics, Covariances, and Average Returns:
19291997,” Journal of Finance, for more details. 



BE/ME 

BooktoMarket. The booktomarket
ratio used to form portfolios in June of year t is book equity for
the fiscal year ending in calendar year t1, divided by market equity
at the end of December of t1. 



OP 

Operating Profitability. The operating profitability ratio used to
form portfolios in June of year t is annual revenues minus cost of goods sold, interest expense,
and selling, general, and administrative expense divided by the sum of book equity and minority
interest for the last fiscal year ending in t1. 



INV 

Investment. The investment ratio used to form portfolios
in June of year t is the change in total assets from the fiscal year ending in year t2 to
the fiscal year ending in t1, divided by t2 total assets. 



E/P 

Earnings/Price. Earnings is total earnings
before extraordinary items, from Compustat. The earnings/price ratio
used to form portfolios in June of year t is earnings for the fiscal
year ending in calendar year t1, divided by market equity at the
end of December of t1. 



CF/P 

Cashflow/Price. Cashflow is total earnings
before extraordinary items, plus equity’s share of depreciation,
plus deferred taxes (if available), from Compustat. Equity’s share
is defined as market equity divided by assets minus book equity
plus market equity. The cashflow/price ratio used to form portfolios
in June of year t is the cashflow for the fiscal year ending in
calendar year t1, divided by market equity at the end of December
of t1. 



D/P 

Dividend Yield. The dividend yield
used to form portfolios in June of year t is the total dividends
paid from July of t1 to June of t per dollar of equity in June
of t. The dividend yield is computed using the with and without
dividend returns from CRSP, as described in Fama and French, 1988,
“Dividend yields and expected stock returns,” Journal of Financial
Economics 25. 
