We examine relations between sustainable growth and stock returns over . Findings indicate that high sustainable growth firms tend to have low default risk, low book-to-market ratios, and low subsequent returns. Of the four sustainable growth components, we find that the net profit margin is the major determinant of subsequent returns. Results persist after controlling for asset growth and capital expenditure growth. Additional tests indicate that the sustainable growth effect is attributable to risk and not to mispricing.

Various techniques and sources of information exist to aid investors in predicting future stock returns. However, no effective proxy for retail investors, such as stock message board users, has been established. This study provides guidelines for creating an effective proxy. The heart of such proxies is sentiment indexes, and in the past the indexes have had low predictive power. Introducing four methodological improvements for applying text classifiers and two probability measurements, we contrast eight widely applied text classifiers to stock message board data. Based on the classifier results and incorporating our new methods, the new sentiment index proves to be a significant "same-day positive but next-day negative" directional indicator.JEL Classification: G11, G12

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We simulate results from a simple real options model to provide insight into the value-growth stock return anomaly. In our model, firms possess either single ("value" firm) or multiple ("growth" firm) investment opportunities. Our model predicts that growth firms: (1) invest sooner, (2) exhibit greater continuity in capital expenditure over time, (3) have lower book-to-market ratios, and (4) generate lower rates of return than value firms. Copyright (c) 2010, The Eastern Finance Association.

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