Sector Investment Growth Rates and the Cross Section of Equity Returns

Qing Li, Maria Vassalou and Yuhang Xing
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Qing Li: Columbia University
Maria Vassalou: Columbia University
Yuhang Xing: Rice University

Journal of Business, 2006, vol. 79, issue 3, pages 1637-1636

Abstract: We examine the importance of the information contained in sector investment growth rates for explaining the cross section of equity returns. We propose an empirical specification that outperforms the capital asset pricing model and Cochrane's (1996) model and performs at least as well as the Fama-French (1993) and Lettau-Ludvigson (2001) models in explaining the 25 Fama-French size-sorted and book-to-market-sorted portfolios, as well as other sets of test assets.

Date: 2006

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