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Cash, investments and asset returns

  • Huang, Dayong
  • Wang, Fang

We use an investment-based asset pricing model to examine the effect of firms' investments relative to cash holdings on stock returns, assuming holding cash lowers transaction costs. We find that mimicking portfolios based on investments relative to non-cash capital and based on investments relative to cash capital are priced for various testing portfolios. On average, momentum stocks and growth stocks are more sensitive to the factor constructed using investment relative to cash.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(09)00138-1
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 33 (2009)
Issue (Month): 12 (December)
Pages: 2301-2311

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Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2301-2311
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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