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Author: Amy Chan
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Do stocks with faster growth potential exhibit superior average returns? Exploiting a parameterized equity valuation model, we analytically solve for the expected rate of return. We develop theoretical restrictions under which growth outlook induces a higher expected rate of return. Empirically, we find that in certain cyclical segments of the market, stocks with higher (ex-ante) growth expectation perform better than their slower growing counterparts. Growth outlook also enhances the profitability of momentum strategies: Winners with accelerated earnings growth potential experience superior returns compared to winners with sluggish growth potential. Controlling for cross-sectional movements in earnings yield, higher growth outlook stocks tend to have more pronounced average returns. Intriguingly, small-cap stocks with low growth outlook outperform small-cap stocks with high growth outlook. Growth outlook has investment value beyond traditional strategy drivers (momentum, value and size).
Author: Amy Chan
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Do stocks with faster growth potential exhibit superior average returns? Exploiting a parameterized equity valuation model, we analytically solve for the expected rate of return. We develop theoretical restrictions under which growth outlook induces a higher expected rate of return. Empirically, we find that in certain cyclical segments of the market, stocks with higher (ex-ante) growth expectation perform better than their slower growing counterparts. Growth outlook also enhances the profitability of momentum strategies: Winners with accelerated earnings growth potential experience superior returns compared to winners with sluggish growth potential. Controlling for cross-sectional movements in earnings yield, higher growth outlook stocks tend to have more pronounced average returns. Intriguingly, small-cap stocks with low growth outlook outperform small-cap stocks with high growth outlook. Growth outlook has investment value beyond traditional strategy drivers (momentum, value and size).
Author: Stijn Claessens
Publisher: World Bank Publications
ISBN:
Category : Rate of return
Languages : en
Pages : 28
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Book Description
Author: Michael J. Cooper
Publisher:
ISBN:
Category :
Languages : en
Pages : 22
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Book Description
We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium of 20% per year over high asset growth stocks. The asset growth return premium begins in January following the measurement year and persists for up to five years. The firm asset growth rate maintains an economically and statistically important ability to forecast returns in both large capitalization and small capitalization stocks. In the cross-section of stock returns, the asset growth rate maintains large explanatory power with respect to other previously documented determinants of the cross-section of returns (i.e., size, prior returns, book-to-market ratios). We conclude that risk-based explanations have some difficulty in explaining such a large and consistent return premium.
Author: Hongtao Li
Publisher:
ISBN:
Category : Asset-liability management
Languages : en
Pages : 57
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Book Description
"Prior research finds that expected returns decrease in firms' total asset growth. This study shows that the asset growth effect is driven by external growth, the component of growth from external sources. While internal growth is unrelated to expected returns, external growth outperforms total asset growth as well as other growth measures in predicting the cross section of average returns. Indeed, firms with low external growth generate significantly higher returns than those with high external growth even among the largest, most liquid stocks (t > 3.0). Further, controlling for external growth improves the Sharpe ratio of the tangent portfolio spanned by commonly used factors (i.e., size, value, profitability, investment, and momentum), and helps to explain most investment related anomalies. Overall, the evidence suggests that external growth is a robust predictor of the cross section of stock returns."--Page v.
Author: G. Mujtaba Mian
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Value stocks have historically outperformed growth stocks in most of the major international markets. Many researchers attribute this phenomenon to overly optimistic (pessimistic) expectations of investors for growth (value) stocks. In this paper, we use professional analysts' earnings forecasts from Japan to test this errors-in-expectations hypothesis. We compare the magnitude of the forecast errors, the proportion of optimistic and pessimistic forecasts, and the likelihood of downward forecast revisions, across growth and value stocks. In contrast to the predictions of the hypothesis, we do not find any evidence that earnings forecasts are systematically more optimistic for growth than for value stocks. Our results also suggest that the alleged correlation between book-to-market value, a common measure of growth, and forecast errors is the result of a measurement bias in computing the magnitude of the latter variable.
Author: Turan G. Bali
Publisher: John Wiley & Sons
ISBN: 1118589475
Category : Business & Economics
Languages : en
Pages : 512
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Book Description
“Bali, Engle, and Murray have produced a highly accessible introduction to the techniques and evidence of modern empirical asset pricing. This book should be read and absorbed by every serious student of the field, academic and professional.” Eugene Fama, Robert R. McCormick Distinguished Service Professor of Finance, University of Chicago and 2013 Nobel Laureate in Economic Sciences “The empirical analysis of the cross-section of stock returns is a monumental achievement of half a century of finance research. Both the established facts and the methods used to discover them have subtle complexities that can mislead casual observers and novice researchers. Bali, Engle, and Murray’s clear and careful guide to these issues provides a firm foundation for future discoveries.” John Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University “Bali, Engle, and Murray provide clear and accessible descriptions of many of the most important empirical techniques and results in asset pricing.” Kenneth R. French, Roth Family Distinguished Professor of Finance, Tuck School of Business, Dartmouth College “This exciting new book presents a thorough review of what we know about the cross-section of stock returns. Given its comprehensive nature, systematic approach, and easy-to-understand language, the book is a valuable resource for any introductory PhD class in empirical asset pricing.” Lubos Pastor, Charles P. McQuaid Professor of Finance, University of Chicago Empirical Asset Pricing: The Cross Section of Stock Returns is a comprehensive overview of the most important findings of empirical asset pricing research. The book begins with thorough expositions of the most prevalent econometric techniques with in-depth discussions of the implementation and interpretation of results illustrated through detailed examples. The second half of the book applies these techniques to demonstrate the most salient patterns observed in stock returns. The phenomena documented form the basis for a range of investment strategies as well as the foundations of contemporary empirical asset pricing research. Empirical Asset Pricing: The Cross Section of Stock Returns also includes: Discussions on the driving forces behind the patterns observed in the stock market An extensive set of results that serve as a reference for practitioners and academics alike Numerous references to both contemporary and foundational research articles Empirical Asset Pricing: The Cross Section of Stock Returns is an ideal textbook for graduate-level courses in asset pricing and portfolio management. The book is also an indispensable reference for researchers and practitioners in finance and economics. Turan G. Bali, PhD, is the Robert Parker Chair Professor of Finance in the McDonough School of Business at Georgetown University. The recipient of the 2014 Jack Treynor prize, he is the coauthor of Mathematical Methods for Finance: Tools for Asset and Risk Management, also published by Wiley. Robert F. Engle, PhD, is the Michael Armellino Professor of Finance in the Stern School of Business at New York University. He is the 2003 Nobel Laureate in Economic Sciences, Director of the New York University Stern Volatility Institute, and co-founding President of the Society for Financial Econometrics. Scott Murray, PhD, is an Assistant Professor in the Department of Finance in the J. Mack Robinson College of Business at Georgia State University. He is the recipient of the 2014 Jack Treynor prize.
Author: Sandro Odoni
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Author: Michael J. Cooper
Publisher:
ISBN:
Category :
Languages : en
Pages : 54
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Book Description
We test for firm-level asset investment effects in returns by examining the cross-sectional relation between firm asset growth and subsequent stock returns. As a test variable, we use the year-on-year percentage change in total assets. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.
Author: Rafael La Porta
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Previous research has shown that stocks with low prices relative to book value, cash flow, earnings, or dividends (that is, value stocks) earn high returns. Value stocks may earn high returns because they are more risky. Alternatively, systematic errors in expectations may explain the high returns earned by value stocks. I test for the existence of systematic errors using survey data on forecasts by stock market analysts. I show that investment strategies that seek to exploit errors in analysts' forecasts earn superior returns because expectations about future growth in earnings are too extreme.
Author: John G. Cragg
Publisher: University of Chicago Press
ISBN: 0226116727
Category : Business & Economics
Languages : en
Pages : 185
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Book Description
John G. Cragg and Burton G. Malkiel collected detailed forecasts of professional investors concerning the growth of 175 companies and use this information to examine the impact of such forecasts on the market evaluations of the companies and to test and extend traditional models of how stock market values are determined.
