 Private investment and public equity returnsRobert Couch and Wei Wu Journal of Economics and Business, 2012, vol. 64, issue 2, 160-184 Abstract: Because of external financing costs, private business owners often need to self-finance new investment projects. These self-financing needs create an incentive for business owners to hold financial assets whose payoffs are positively correlated with self-financing needs. If this effect is aggregated, expected returns on financial assets should be negatively correlated with aggregate private investment self-financing needs. To test the cross-sectional asset pricing implications of this conjecture, we use realized noncorporate investment growth and future forecasted noncorporate investment growth as proxies for self-financing needs. We find that our private investment model can explain a good share of the cross-sectional returns of size-, value- and distress-sorted equity portfolios, almost as well as the Fama–French factors. In contrast to the Fama–French model, however, we find the signs on our estimated coefficients to be consistent with our theoretical predictions. Keywords: Asset pricing; Financial constraints; Private investment; GMM (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:64:y:2012:i:2:p:160-184 DOI: 10.1016/j.jeconbus.2011.10.001 Access Statistics for this article Journal of Economics and Business is currently edited by Emanuele Bajo and Moritz Ritter More articles in Journal of Economics and Business from Elsevier |
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