Market-to-book ratio in stochastic portfolio theory

We study market-to-book ratios of stocks in the context stochastic portfolio theory. Functionally generated portfolios that depend on auxiliary economic variables other than relative capitalisations (“sizes”) are developed two ways, together with their returns respect to market. This enables us identify value factor (i.e., ratio) such when stocks’ book values. Examples portfolios, as well empirical results, given, evidence addition size, does affect performance portfolio.