Michael M. Raleigh



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The objective of this study is to find out if retained earnings is a determinant of portfolio returns in the cross section. Two hypotheses are tested. First, that value stocks with higher levels of retained earnings will out perform value stocks with lower levels of retained earnings. Second, that growth stocks operate differently in that stocks with low levels of retained earnings will outperform stocks with high levels of retained earnings. For the cross section analysis, the S&P 500 is divided into 10 groupings of 50 stocks each by firm size. using price to book, the top 50 and bottom 50 are further divided into portfolios of 25 stocks each and labeled as relative growth and value portfolios. Weighting the stocks by retained earnings per share, a performance comparison is made for the four portfolios relative to the S&P500 and the Russell 1000 value and growth indexes. The period of analysis is 2006-2004 which includes all phases of a market cycle.

Publication Date


Project Designation

Independent Research

Primary Advisor

Trevor C Collier

Primary Advisor's Department

Economics and Finance


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Retained Earnings as a Determinant of the Cross Section of Returns