The Role of Growth in Long Term Investment Returns

John Broussard, David Michayluk (david.michayluk@uts.edu.au) and Walter P. Neely
Additional contact information
Walter P. Neely: Millsaps College

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Stocks with a high valuation compared to fundamental values imply a high growth rate, yet these stocks have typically under-performed in subsequent years supporting Lakonishok, Shleifer and Vishney's (1994) contrarian investment strategies. The precise definition of growth and subtle differences of measuring growth are explored in assessing the role of growth in long-term investment decisions and stock valuation. Results from a later period and with additional tests than employed by LSV indicate that growth is a primary valuation factor, and valuation measures such as E/P and B/M, are imperfect proxies for expected growth. Growth appears mean reverting, but investors do not seem able to discern changes in growth rates and this miss-specification of expected growth may help explain the superiority of value versus growth strategies. In addition, investors' naïve extrapolations of past growth provide explanatory power in future holding period returns.

Pages: 13 pages
Date: 2005-01-01
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Published as: Broussard, J.P., Michayluk, D. and Neely, W., 2005, "The Role of Growth in Long Term Investment Returns", The Journal of Applied Business Research, 21(1), 93-105.

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:uts:ppaper:2005-3

Access Statistics for this paper

More papers in Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney PO Box 123, Broadway, NSW 2007, Australia. Contact information at EDIRC.
Bibliographic data for series maintained by Duncan Ford (duncan.ford@uts.edu.au).