EconPapers    
Economics at your fingertips  
 

Does systematic distress risk drive the investment growth anomaly?

Xuan-Qi Su

The Quarterly Review of Economics and Finance, 2016, vol. 61, issue C, 240-248

Abstract: Expanding on rational Q theory, this study demonstrates that less exposure to systematic distress risk partially explains the phenomenon of investment growth anomalies, wherein equities of firms with greater growth in capital investment display lower stock returns. Using the default yield spread between BAA- and AAA-rated corporate bonds as a proxy for a systematic distress risk factor driving the pricing kernel, I show that firms with high (low) capital investment have lower (higher) exposure to systematic distress risk and thus lower (higher) expected returns. Depending on model settings, the factor used here to measure systematic distress risk explains 30–40% of the investment growth effect. Overall, I conservatively conclude that a moderate part of investment growth anomaly can be viewed as compensation for systematic distress risk, even though many studies explain it as a result of behavioral mispricing.

Keywords: Capital investment; Investment growth anomaly; Systematic distress risk; Default yield spread (search for similar items in EconPapers)
JEL-codes: G12 G31 G32 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976916000259
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:61:y:2016:i:c:p:240-248

DOI: 10.1016/j.qref.2016.02.011

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:quaeco:v:61:y:2016:i:c:p:240-248