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The Profitability and Investment Premium: Pre-1963 Evidence

34 Pages Posted: 31 Dec 2016 Last revised: 3 Feb 2017

Sunil Wahal

Arizona State University (ASU) - Finance Department

Date Written: December 29, 2016

Abstract

I investigate the profitability and investment premium in stock returns using hand-collected data from Moody’s Manuals for 1940-1963. Three results emerge. First, the profitability premium in 1940-1963 is similar in magnitude to the post-1963 period. Second, I detect no reliable relation between investment and returns, regardless of whether investment is measured using growth in total assets or book equity. The lack of an investment premium extends back to 1926. Third, unlike in 1963-2013, HML is not redundant in the Fama and French (2015) five-factor model.

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

JEL Classification: G12

Suggested Citation

Wahal, Sunil, The Profitability and Investment Premium: Pre-1963 Evidence (December 29, 2016). Available at SSRN: https://ssrn.com/abstract=2891491 or http://dx.doi.org/10.2139/ssrn.2891491

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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