Does the Investment Model Explain Value and Momentum Simultaneously?

Andrei S. Gonçalves, Chen Xue and Lu Zhang (zhanglu@fisher.osu.edu)

No 23910, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Two innovations in the structural investment model go a long way in explaining value and momentum jointly. Firm-level investment returns are constructed from firm-level accounting variables, and are then aggregated to the portfolio level to match with portfolio-level stock returns. In addition, current assets form a separate production input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums jointly, and partially explains the positive stock-investment return correlations, the procyclicality and short-term dynamics of the momentum and profitability premiums, and the countercyclicality and long-term dynamics of the value and investment premiums. However, the model fails to explain momentum crashes.

JEL-codes: E13 E22 G12 G14 G31 (search for similar items in EconPapers)
Date: 2017-10
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cfn, nep-cta and nep-mac
Note: AP CF EFG
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Citations: View citations in EconPapers (1)

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