IDEAS home Printed from
   My bibliography  Save this article

Connecting Optimal Capital Investment and Equity Returns


  • R. Burt Porter


Economic theory predicts a contemporaneous correlation between equity returns and investment growth that is only weakly present in the data. By modifying the firm’s production function to include a lag between investment decisions and expenditures, and after correcting for the temporal aggregation of investment, I find the predicted correlation to be present in the data. I estimate the model for 31 industries and find that investment returns are highly correlated with the industry portfolio equity returns. Further, the portion of investment returns orthogonal to equity returns is associated positively with changes in profitability and negatively with lagged differences between equity and investment returns.

Suggested Citation

  • R. Burt Porter, 2005. "Connecting Optimal Capital Investment and Equity Returns," Financial Management, Financial Management Association, vol. 34(2), Summer.
  • Handle: RePEc:fma:fmanag:porter05

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fma:fmanag:porter05. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Courtney Connors). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.