Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks
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Kogan_Firm characteristics.pdf
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539.52 KB
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Checksum (MD5)
72bb94f15735d19fdd17ae8be49b3d2d
Author(s)
Kogan, Leonid
Papanikolaou, Dimitris
Date Issued
May 2013
Journal
Review of Financial Studies
Publisher
Oxford University Press
Citation
Kogan, L., and D. Papanikolaou. “Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks.” Review of Financial Studies 26, no. 11 (November 1, 2013): 2718–2759.
Version
Author's final manuscript
Abstract
Average return differences among firms sorted on valuation ratios, past investment, profitability, market beta, or idiosyncratic volatility are largely driven by differences in exposures of firms to the same systematic factor related to embodied technology shocks. Using a calibrated structural model, we show that these firm characteristics are correlated with the ratio of growth opportunities to firm value, which affects firms' exposures to capital-embodied productivity shocks and risk premia. We thus provide a unified explanation for several apparent anomalies in the cross-section of stock returns—namely, predictability of returns by these firm characteristics and return comovement among firms with similar characteristics.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
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DOI of Published Version
https://doi.org/10.1093/rfs/hht026
