The investment manifesto

Lin, Xiaoji; Zhang, Lu

doi:10.1016/j.jmoneco.2013.01.001

Cited by 131 publications

(80 citation statements)

References 37 publications

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“…This model is based on a stochastic general equilibrium model in a two-period setting (Lin and Zhang 2013), where the rate of return on investment is equated to the firm's discount rate or cost of capital. Equation 3 can be viewed as rationale for the factors RMW t and CMA t in Equation 1.…”

Section: Five-and Six-factor Models and Robust Instrumentsmentioning

confidence: 99%

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Racicot

Rentz

2015

Applied Economics Letters

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Fama and French (FF, 2015) propose a five-factor asset pricing model that captures size, value, profitability and investment patterns. The primary purpose here is to further investigate this new model using an improved GMM-based robust instrumental variables technique. A further purpose is to explore the relationship among the FF factors and the Pástor-Stambaugh (PS, 2003) liquidity factor. We conclude that except for the market factor, all of the factors including liquidity are not significant at even the 5% level using our GMM approach for almost all of the FF 12 sectors.

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Section: Five-and Six-factor Models and Robust Instrumentsmentioning

confidence: 99%

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Racicot

Rentz

2015

Applied Economics Letters

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“…These findings provide further empirical support for the investment-based asset pricing literature. As argued by Cochrane (1991) and more recently by Lin and Zhang (2013), under fairly general assumptions, investment today should negatively predict stock returns tomorrow. Nevertheless, industrial electricity usage growth still does a much better job than investment growth in predicting future excess stock returns in univariate regressions, and it drives out investment growth in multivariate regressions.…”

Section: Introductionmentioning

confidence: 95%

Industrial Electricity Usage and Stock Returns

Da¹,

Huang²,

Yun³

2017

J. Financ. Quant. Anal.

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The growth rate of industrial electricity usage predicts future stock returns up to 1 year with an R 2 of 9%. High industrial electricity usage today predicts low stock returns in the future, consistent with a countercyclical risk premium. Industrial electricity usage tracks the output of the most cyclical sectors. Our findings bridge a gap between the asset pricing literature and the business cycle literature, which uses industrial electricity usage to gauge production and output in real time. Industrial electricity growth compares favorably with traditional financial variables, and it outperforms Cooper and Priestley's output gap measure in real time.

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“…To formalise this intuition, we use a simple twoperiod model of firm investment. It is very similar to the two-period models of Lin and Zhang (2013) and Hou et al (2015), and it can easily be generalised to the infinite-horizon setting to obtain a model similar to that of Liu et al (2009). By analysing the implications of the model, we develop clear predictions about the cross-sectional relation between investment and stock returns.…”

Section: The Hurdle Rate Hypothesismentioning

confidence: 88%

“…The model, which is very similar to the models developed by Lin and Zhang (2013) and Hou et al (2015), implies that hurdle rates should be set equal to expected stock returns. It also makes clear predictions about the shape of the function that relates stock returns to past levels of capital investment.…”

Section: Introductionmentioning

confidence: 92%

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Capital expenditures and firm performance: evidence from a cross‐sectional analysis of stock returns

Cordis

Kirby

2016

Accounting & Finance

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Using a simple two-period model of investment, we show that there should be a nonlinear relation between a firm's investment-to-capital ratio and its subsequent stock returns. This prediction finds substantial empirical support. The evidence indicates that the slope of the investment function is negative at low investment levels, close to zero at intermediate investment levels and negative at high investment levels. Our results, which are robust to the use of narrowlyand broadly-defined measures of capital investment, pose a challenge to the hypothesis that the negative cross-sectional correlation between investment and stock returns is attributable to some sort of overinvestment phenomenon.

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The investment manifesto

Cited by 131 publications

References 37 publications

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Testing Fama–French’s new five-factor asset pricing model: evidence from robust instruments

Industrial Electricity Usage and Stock Returns

Capital expenditures and firm performance: evidence from a cross‐sectional analysis of stock returns

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