The Profitability and Investment Premium: Pre-1963 Evidence

41 Pages Posted: 31 Dec 2016 Last revised: 25 Mar 2018

See all articles by Sunil Wahal

Sunil Wahal

Arizona State University (ASU) - Finance Department

Date Written: March 20, 2018


I investigate the profitability and investment premium in stock returns using hand-collected data from Moody’s Manuals for 1940-1963. Controlling for value, the profitability premium emerges as important in this period. In contrast, there no reliable relation between investment and returns, regardless of whether investment is measured using growth in total assets or book equity, and even after extending the data back to 1926. In spanning regressions, factors constructed from profitability and book-to-market ratios (RMW and HML respectively) improve the mean-variance efficient tangency portfolio but the investment factor (CMA) does not.

Keywords: Profitability, Investment, Value Premium, Factor Models, Asset Pricing

JEL Classification: G12

Suggested Citation

Wahal, Sunil, The Profitability and Investment Premium: Pre-1963 Evidence (March 20, 2018). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

Sunil Wahal (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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