Corporate Investment and Stock Return Momentum

Ki C. Han (), Abu Jalal and Karen Simonyan ()
Additional contact information
Ki C. Han: Sawyer Business School, Suffolk University, 8 Ashburton Place, Boston, MA 02108, USA
Abu Jalal: Sawyer Business School, Suffolk University, 8 Ashburton Place, Boston, MA 02108, USA
Karen Simonyan: Sawyer Business School, Suffolk University, 8 Ashburton Place, Boston, MA 02108, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2022, vol. 25, issue 01, 1-59

Abstract: We investigate the link between corporate investment and the momentum effect in stock returns. We argue that the momentum effect in a firm’s stock returns tends to be generated as a result of a series of information exchanges between stock market investors and firm insiders regarding the firm’s investment opportunities. Our theoretical setup predicts that past winners (losers) are likely to increase (decrease) their net investment, and the more they invest (disinvest) the more likely they are to realize positive (negative) returns in subsequent periods. Our empirical tests using a large sample of firms in 1984–2017 provide support for our hypotheses. We further design a momentum trading strategy, which buys past winners with positive predicted changes in net investment and sells past losers with negative predicted changes in net investment, and demonstrate that this trading strategy generates superior returns compared to a simple momentum trading strategy.

Keywords: Corporate investment; stock return momentum; momentum trading strategy; forecasting corporate investment (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091522500060
Access to full text is restricted to subscribers

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:wsi:rpbfmp:v:25:y:2022:i:01:n:s0219091522500060

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091522500060

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().