What explains the investment growth anomaly?

Prombutr, Wikrom; Phengpis, Chanwit; Zhang, Ying

doi:10.1016/j.jbankfin.2012.05.010

Cited by 9 publications

(5 citation statements)

References 27 publications

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“…The correlation between the investment growth characteristic, IG , and the LMH factor loading, γ LMH , is only −0.3 per cent and statistically insignificant (with the p -value of 0.421). The low correlation between the investment growth characteristic and the LMH factor loading is also similar to results in Prombutr et al (2012). In contrast, the correlation between the book-to-market ratio or value characteristic, BM , and the HML factor loading, γ HML , is much higher at 11.1 per cent and strongly significant (with the p -value of 0.000).…”

Section: Investment Growth Book-to-market Ratio Size and Their Factorssupporting

confidence: 77%

Behavioral-related firm characteristics, risks and determinants of stock returns

Prombutr

Phengpis

2019

RAF

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Purpose This paper aims to investigate a relatively new anomaly of investment growth and revisits well-known anomalies of size and value. It aims to answer two main research questions. First, can covariance risks (i.e. factor loadings) be excluded from being determining variables that drive return premiums and explain stock returns? Second, from a behavioral finance standpoint, the authors examine whether using firm characteristics is a more practical and accessible approach and also meets the necessary and sufficient conditions to analyze stock returns. Design/methodology/approach The authors create the investment-growth-based factor (LMH) which is defined as the return difference between low and high investment growth portfolios. The authors then incorporate the LMH factor along with other characteristic-based factors and their loadings into characteristic-balanced portfolio and three-factor model tests. Findings The authors find that covariance risks on investment growth, size and value are not necessary as determining variables. Instead, they find that behavioral-related firm characteristics of investment growth, size and value are necessary and sufficient as determinants of return premiums and stock returns. Practical implications The results have practical and useful implications for investors in their stock portfolio analysis and selection because firm characteristics are relatively more available than covariance risks that need estimation and typically contain measurement errors. Originality/value The paper has practical value to investors in their stock portfolio analysis and selection. Methodologically, in contrast to prior studies that do not directly use the investment growth to control for portfolio characteristics, the use of the newly created LMH factor and its loadings allows us to directly and properly test if the investment growth anomaly is related to the investment growth characteristic that is hypothesized to drive return premiums and determine stock returns from behavioral finance perspectives.

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Section: Investment Growth Book-to-market Ratio Size and Their Factorssupporting

confidence: 77%

Behavioral-related firm characteristics, risks and determinants of stock returns

Prombutr

Phengpis

2019

RAF

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“…They show that there is a strong relationship between the asset growth effect and financial market development, which is expected under the description of the q-theory. Prombutr, Phengpis, and Zhang (2012) also find support for the risk-based explanation. Xing (2008) measures capital investment with both investment growth rates and investment-to-capital ratios and use a large US firm-level data set from 1964 to 2003.…”

Section: Brief Literature Review and Hypothesesmentioning

confidence: 58%

The Asset Growth Effect and Investor Protection in Emerging Markets: The Role of the Global Financial Crisis

Gönenç

Ursu

2018

Emerging Markets Finance and Trade

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“…So two typical and classic characteristic-based return patterns, size effect (Chan, Chen, & Hsieh, 1985;Fama & French, 1992) and investment effect (Prombutra, Phengpisa, & Zhang, 2012;Watanabe, Xu, Yao, & Yu, 2013), are put the center of this study. Specifically, size effect reveals a return pattern that firms with smaller size (market capitalization) tend to have higher expected returns while big-size firms tend to have lower expected returns.…”

Section: Abnormal Returnsmentioning

confidence: 99%

A Revisit of the Cross-Section of Overnight and Intraday Abnormal Returns: Evidence from the Japanese REIT Market

Chen¹,

Kawaguchi²

2017

IJEF

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This study revisits an overnight-intraday reversal strategy that generates an abnormal excess return for a stock market. The study is the first to examine whether abnormal returns related to size effect and investment effect occur overnight or intraday in the Japanese Real Estate Investment Trust (J-REIT) market. Empirical results show that in the J-REIT market, significant positive abnormal returns on investment effect as well as size effect occur intraday, followed by reversals that negative abnormal returns occur overnight. Further empirical results reveal that foreign institutional investors and individual investors trade against domestic institutional investors, and strengthen the asymmetric intraday and overnight abnormal returns. Therefore, we support the hypothesis that investor heterogeneity can explain the overnight-intraday anomaly. Moreover, the J-REIT market responds quickly and significantly to announcements from the Bank of Japan (BOJ). The information surprise caused by BOJ's announcements also intensifies the intraday and overnight abnormal returns in the J-REIT market.

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What explains the investment growth anomaly?

Cited by 9 publications

References 27 publications

Behavioral-related firm characteristics, risks and determinants of stock returns

Behavioral-related firm characteristics, risks and determinants of stock returns

The Asset Growth Effect and Investor Protection in Emerging Markets: The Role of the Global Financial Crisis

A Revisit of the Cross-Section of Overnight and Intraday Abnormal Returns: Evidence from the Japanese REIT Market

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