34 Pages Posted: 31 Dec 2016 Last revised: 3 Feb 2017
Date Written: December 29, 2016
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: Suggested Citation
By Andrew Ang