The profitability and investment premium: Pre-1963 evidence

Sunil Wahal

Journal of Financial Economics, 2019, vol. 131, issue 2, 362-377

Abstract: I investigate the profitability and investment premium in stock returns using hand-collected data from Moody's Manuals for 1940–1963. Controlling for value, the profitability premium emerges as important in this period. In contrast, there is no reliable relation between investment and returns, regardless of whether investment is measured using growth in total assets or book equity and even after extending the data back to 1926. In spanning regressions, factors constructed from profitability and book-to-market ratios (RMW and HML, respectively) improve the mean-variance efficient tangency portfolio but the investment factor (CMA) does not.

Keywords: Asset pricing; Multifactor models; Dividend discount model; Profitability; Investment (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:131:y:2019:i:2:p:362-377

DOI: 10.1016/j.jfineco.2018.09.007

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