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This paper demonstrates that risk is unlikely to be the only factor explaining the excess return difference between macroeconomic announcement days and other trading days. We argue that investor sentiment may affect the return on the prescheduled macroeconomic news release. We find that the return on macroeconomic announcement days is much higher than the return on other days, especially when changes in investor sentiment are higher. The impact of investor sentiment on the macroeconomic announcement effect is greater when investor sentiment is higher. Our results remain valid using different investor sentiment measures and testing for heteroscedasticity in stock returns.

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The q-theory of investment is proposed to explain firm growth effects, where previous papers identify a negative effect of firm growth, including asset growth, real investment and net share issuance, on future stock returns. This paper uses returns to scale from the production function to test the dynamic q-theory, which predicts that the firm growth effect is theoretically weaker for firms with decreasing returns to scale (DRS) than for non-DRS firms.Our empirical results generally support the prediction of dynamic q-theory. However, we find that the dynamic q-theory explains little of the value, momentum and ROE effects from the standpoint of returns to scale. K E Y W O R D S asset growth, investment, net share issuance, q-theory, returns to scale J E L C L A S S I F I C AT I O N G12, G14