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Sector Investment Growth Rates and the Cross Section of Equity Returns

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Author Info

  • Qing Li

    (Columbia University)

  • Maria Vassalou

    (Columbia University)

  • Yuhang Xing

    (Rice University)

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    Abstract

    We examine the importance of the information contained in sector investment growth rates for explaining the cross section of equity returns. We propose an empirical specification that outperforms the capital asset pricing model and Cochrane's (1996) model and performs at least as well as the Fama-French (1993) and Lettau-Ludvigson (2001) models in explaining the 25 Fama-French size-sorted and book-to-market-sorted portfolios, as well as other sets of test assets.

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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB790320
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 79 (2006)
    Issue (Month): 3 (May)
    Pages: 1637-1665

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    Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:3:p:1637-1636

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Couch, Robert & Wu, Wei, 2012. "Private investment and public equity returns," Journal of Economics and Business, Elsevier, vol. 64(2), pages 160-184.
    2. Pongrapeeporn Abhakorn & Peter N. Smith & Michael Wickens, 2013. "What do the Fama-French Factors Add to C-CAPM?," CESifo Working Paper Series 4197, CESifo Group Munich.
    3. Urban Jermann, 2013. "A Production-Based Model for the Term Structure," NBER Working Papers 18774, National Bureau of Economic Research, Inc.
    4. Balvers, Ronald J. & Huang, Dayong, 2007. "Productivity-based asset pricing: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 86(2), pages 405-445, November.
    5. Lewellen, Jonathan & Nagel, Stefan & Shanken, Jay, 2010. "A skeptical appraisal of asset pricing tests," Journal of Financial Economics, Elsevier, vol. 96(2), pages 175-194, May.
    6. Stefan Nagel, 2012. "Empirical Cross-Sectional Asset Pricing," NBER Working Papers 18554, National Bureau of Economic Research, Inc.
    7. Kim, Dongcheol & Kim, Tong Suk & Min, Byoung-Kyu, 2011. "Future labor income growth and the cross-section of equity returns," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 67-81, January.
    8. Jermann, Urban J., 2013. "A production-based model for the term structure," Journal of Financial Economics, Elsevier, vol. 109(2), pages 293-306.
    9. Du, Ding, 2014. "Persistent exchange-rate movements and stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 36-53.
    10. Lewellen, Jonathan, 2010. "Accounting anomalies and fundamental analysis: An alternative view," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 455-466, December.

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