Conditional Equity Premium and Aggregate Corporate Investment

85 Pages Posted: 21 Aug 2016 Last revised: 22 Sep 2021

See all articles by Hui Guo

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2021


We document a strong negative relation between aggregate corporate investment and conditional equity premium estimated from direct stock market risk measures. Consistent with the investment-based asset pricing model, the comovement with conditional equity premium fully accounts for aggregate investment’s market return predictive power. Similarly, conditional equity premium is a significant determinant of classic Tobin’s q measure, although q has much weaker explanatory power for aggregate investment possibly because of its measurement errors. Moreover, the positive relation between aggregate investment and investor sentiment documented in previous studies reflects the fact that both variables correlate closely with conditional equity premium.

Keywords: Aggregate Corporate Investment, Return on Assets, Aggregate Corporate Profitability, Conditional Equity Premium, Market Variance, Aggregate Idiosyncratic Variance, Tobin’s q, Investor Sentiment, Investment-Based Asset Pricing Model

JEL Classification: G10, G12, G3

Suggested Citation

Guo, Hui and Qiu, Buhui, Conditional Equity Premium and Aggregate Corporate Investment (March 24, 2021). Journal of Money, Credit and Banking, forthcoming; 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017 , Available at SSRN: or

Hui Guo

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)


Buhui Qiu (Contact Author)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)


Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

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