دانلود رایگان مقاله انگلیسی سرمایه گذاری مورد انتظار و مقطع بازده سهام - الزویر 2018

Abstract

In this paper, we show that the relation between expected investment and future stock returns (i.e., the expected investment-return relation) is negative and inconsistent with the multiperiod q theory. Further analysis reveals that the expected investment change measure of Hou et al. (2018a) is a poor proxy for future investment because of the mismatch of investment characteristics and the incorrect constraint imposed on the regression.

5. Concluding remarks

This paper investigates the relation between expected investment and future stock returns and finds that this expected investment-return relation is negative, which is inconsistent with the multiperiod q theory and the findings of Hou et al. (2018a,b) that the associated relation should be positive. Further analysis reveals that there are two potential reasons for this result. First, the expected investment change measure of Hou et al. (2018a) is a poor proxy for firms’ true future investment. In fact, stocks in the lowest (highest) decile are those that invest aggressively (conservatively) in the future. Second, the expected investment change estimate is biased because the regression conducted to yield the expected investment changes and the implied component of expected investment is equivalent to the constrained regression, with the constraint that the slope coefficient of I/A is one, which is found to be inconsistent with the empirical evidence. Imposing the incorrect constraint on the regression can lead to biased parameter estimates and, therefore, misleading inferences. Overall, our findings indicate a negative relation between expect investment and future stock returns, which is inconsistent with the multiperiod q theory. However, we argue that the literature based on mispricing may offer explanations for this negative relation. For example, the negative relation can be attributable to corporate managers’ empire-building tendency and investor misreaction (Titman et al., 2004). That is, corporate managers tend to overinvest when they are subject to agency problems. If investors do not fully understand the agency problem of overinvestment when they value stocks, they may overvalue a firm with high expected investments by overestimating its potential future cash flows. Shleifer and Vishny (1997) argue that because of trading frictions, arbitrage can be costly, and mispricing might not be traded away quickly and completely. The low future returns that follow high expected investment therefore reflect the market correction of the initial misreaction. Another potential explanation is based on investors’ extrapolation bias (Lakonishok et al., 1994; Cooper et al., 2008). Investors may excessively extrapolate from firms’ current and expected growth when they value stocks. Such excessive extrapolation results in the overvaluation of firms with high expected investments and these firms’ low subsequent returns. Although it is beyond the scope of this paper, a comprehensive examination of the sources of the negative expected investment-return relation could be an interesting direction for future research.