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Expected investment and the cross-section of stock returns

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  • Lin, Qi
  • Lin, Xi

Abstract

In this paper, we show that the relation between expected investment and future stock returns (i.e., the expected investment–return relation) is negative and inconsistent with the multiperiod q theory. Further analysis reveals that the expected investment change measure of Hou et al. (2018a) is a poor proxy for future investment because of the mismatch of investment characteristics and the incorrect constraint imposed on the regression.

Suggested Citation

  • Lin, Qi & Lin, Xi, 2018. "Expected investment and the cross-section of stock returns," Economics Letters, Elsevier, vol. 172(C), pages 43-49.
    • Handle: RePEc:eee:ecolet:v:172:y:2018:i:c:p:43-49
    DOI: 10.1016/j.econlet.2018.08.012
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    References listed on IDEAS

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    1. Laura Xiaolei Liu & Toni M. Whited & Lu Zhang, 2009. "Investment-Based Expected Stock Returns," Journal of Political Economy, University of Chicago Press, vol. 117(6), pages 1105-1139, December.
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    More about this item

    Keywords

    Expected investment; Cross-sectional returns; Expected investment change; Multiperiod q theory;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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