Does Inventory Productivity Predict Future Stock Returns? A Retailing Industry Perspective
Vanderbilt University - Operations Management
T. Rowe Price; Cornell University - Samuel Curtis Johnson Graduate School of Management
Cornell University - Samuel Curtis Johnson Graduate School of Management
December 13, 2013
Vanderbilt Owen Graduate School of Management Research Paper No. 1971774
Johnson School Research Paper Series No. 3-2012
We find that inventory productivity strongly predicts future stock returns among a sample of publicly listed U.S. retailers during the period from 1985 to 2010. A zero-cost portfolio investment strategy, which consists of buying from the two highest and selling from the two lowest quintiles formed on inventory turnover, earns more than 1% average monthly abnormal return benchmarked to the Fama-French-Carhart four-factor model. Our results are robust to different measures of inventory productivity, distinct from the well-known firm characteristics known to generate abnormal returns, and not driven by a particular sub-sample period. A longitudinal analysis of portfolio returns over longer holding periods shows that, while inventory productivity is predictive of stock returns, its information dissipates about 1-2 years after release.
Number of Pages in PDF File: 49
Keywords: Operations-finance interface, retail operations, inventory productivity, empirical asset pricing
Date posted: December 14, 2011 ; Last revised: December 13, 2013
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