I'm trying to understand what the Fama-Macbeth regressions of returns actually mean. The source of confusion is a 2013 Novy-Marx paper, in which he states the following:
"The first specification of Panel A shows that gross profitability has roughly the same power as book-to-market predicting the cross section of returns ... The second and third specifications replace gross profitability with earnings-to-book equity and free cash flow-to-book equity, respectively. These variables have much less power than gross profitability"
The corresponding table is here, with info highlighted. Up to this point, my understanding is that the highlighted numbers are the monthly (annual?) Fama-Macbeth regressions of returns.
He then goes on to state the following:
Appendix A.2 performs similar regressions employing alternative earnings variables. In particular, it considers earnings before interest, taxes, depreciation, and amortization (EBITDA)... These regressions show that EBITDA-to-assets [has] significant power predicting the cross section of returns, but that gross profits-to-assets subsumes [its] predictive powers
However, Table A2 (pic 2) shows a different story, with the value of EBITDA/assets greater than GP/assets.
Can someone explain where I'm having a gap in understanding? It seems that EBITDA/assets in his study results in stronger returns, yet his wording and explanation makes it seem the opposite. I am also not sure what the highlighted numbers even mean. Do they signify abnormal returns from certain variables? Or something totally different?
"The other side of value: The gross profitability premium" is the study in question.