We examine the cross-sectional relation between the ratio of log growth in physical capital to log growth in labor and subsequent stock returns. The ratio is a negative predictor of abnormal returns and the relation strengthens with measures of financing constraint while remaining robust to previously provided determinants of returns. A ratio-based 2-factor model outperforms common asset pricing models explaining various anomalies indicating that anomalies reflect cross-sectional variation in growth ratios. We interpret the findings as outcomes reflecting displacements on the production isoquant, and show the pattern in returns is consistent with an investment-based model in which firms face financing constraints.
JEL Classification: D20, D21, D24, G10, G12, G30, G31
Keywords: cross-section of stock returns, asset pricing, corporate investments, growth options, production technology, factors of production, operating risk, stock return and risk, financial constraints, production flexibility.
학회소식
[2016년 제 4차] Capital to Labor Growth Ratio and the Cross-Section
작성자 : 관리자
조회수 : 922
게시일 :
2016-12-21
