q5

Charles A. Dice Center Working Paper No. 2018-10

Fisher College of Business Working Paper No. 2018-03-010

99 Pages Posted: 5 Jun 2018 Last revised: 31 Oct 2018

See all articles by Kewei Hou

Kewei Hou

Ohio State University (OSU) - Department of Finance

Haitao Mo

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Chen Xue

University of Cincinnati

Lu Zhang

Ohio State University - Fisher College of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 12, 2018

Abstract

In a multiperiod investment framework, firms with high expected growth earn higher expected returns than firms with low expected growth, holding investment and expected profitability constant. This paper forms cross-sectional growth forecasts, and constructs an expected growth factor that yields an average premium of 0.82% per month (t =9.81). The q5 model, which augments the Hou-Xue-Zhang (2015) q-factor model with the new factor, shows strong explanatory power in the cross section, and outperforms other recently proposed factor models such as the Fama-French (2018) 6-factor model.

Keywords: The q5-Model, The q-Factor Model, The Expected Growth, The Investment CAPM, Factor Regressions, Anomalies

JEL Classification: G12, G14

Suggested Citation

Hou, Kewei and Mo, Haitao and Xue, Chen and Zhang, Lu, q5 (July 12, 2018). Charles A. Dice Center Working Paper No. 2018-10, Fisher College of Business Working Paper No. 2018-03-010, Available at SSRN: https://ssrn.com/abstract=3191167 or http://dx.doi.org/10.2139/ssrn.3191167

Kewei Hou

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Haitao Mo

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration ( email )

Baton Rouge, LA 70803-6308
United States

Chen Xue

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221
United States
(513) 556-7078 (Phone)

Lu Zhang (Contact Author)

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
585-267-6250 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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