Suchergebnisse

"Momentum is consistent with value maximization of firms. The neoclassical theory of investment implies that expected stock returns are connected with expected marginal benefits of investment divided by marginal costs of investment. Winners have higher expected growth and expected marginal productivity (two major components of marginal benefits of investment), and consequently earn higher expected stock returns than losers. The investment-based model succeeds in capturing average momentum profits, reversal of momentum in long horizons, and the interaction of momentum with firm characteristics. However, the model fails to reproduce procyclical momentum profits. Overall, our evidence suggests that momentum can be understood within a framework in which markets are efficient and managers maximize the market value of equity"--National Bureau of Economic Research web site

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market, investment, and earnings surprises. We estimate the model by minimizing the differences between average stock returns and average levered investment returns via GMM. Our model captures well the average returns of portfolios sorted on capital investment and on size and book-to-market, including the small-stock value premium. Our model is also partially successful in capturing the post-earnings-announcement drift and its higher magnitude in small firms.