Regularities

Laura X. L. Liu, Toni Whited and Lu Zhang ()

No 13024, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market, investment, and earnings surprises. We estimate the model by minimizing the differences between average stock returns and average levered investment returns via GMM. Our model captures well the average returns of portfolios sorted on capital investment and on size and book-to-market, including the small-stock value premium. Our model is also partially successful in capturing the post-earnings-announcement drift and its higher magnitude in small firms.

JEL-codes: E13 E22 E44 G12 (search for similar items in EconPapers)
Date: 2007-04
New Economics Papers: this item is included in nep-mac
Note: AP CF EFG
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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