Does Inventory Productivity Predict Future Stock Returns? A Retailing Industry Perspective

49 Pages Posted: 14 Dec 2011 Last revised: 13 Dec 2013

Yasin Alan

Vanderbilt University - Operations Management

George Gao

T. Rowe Price; Cornell University - Samuel Curtis Johnson Graduate School of Management

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: December 13, 2013

Abstract

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.

Keywords: Operations-finance interface, retail operations, inventory productivity, empirical asset pricing

Suggested Citation

Alan, Yasin and Gao, George and Gaur, Vishal, Does Inventory Productivity Predict Future Stock Returns? A Retailing Industry Perspective (December 13, 2013). Vanderbilt Owen Graduate School of Management Research Paper No. 1971774; Johnson School Research Paper Series No. 3-2012. Available at SSRN: https://ssrn.com/abstract=1971774 or http://dx.doi.org/10.2139/ssrn.1971774

Yasin Alan (Contact Author)

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

George Gao

T. Rowe Price ( email )

Baltimore, MD 21297-1215
United States

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall 314
Ithaca, NY 14853
United States

Vishal Gaur

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Gaur/

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