The Expected Investment Growth Premium

52 Pages Posted: 27 Jun 2018 Last revised: 18 Dec 2018

See all articles by Jun Li

Jun Li

University of Texas at Dallas

Huijun Wang

University of Delaware

Date Written: December 17, 2018


A neoclassical model with investment lags predicts that a firm's risk premium increases with its planned investment. Using a novel measure of investment plans, namely, expected investment growth (EIG), we document that high EIG firms earn an annualized return that is 15.4% higher than low EIG firms in the US sample from July 1968 to December 2016. This EIG premium cannot be captured by leading asset pricing models and is confirmed in various robustness checks. Further analyses provide empirical evidence for the embedded leverage effect of planned investment, which creates cross-sectional heterogeneity in the exposure to business cycle risk.

Keywords: Investment Plan, Expected Investment Growth, Risk Premium

JEL Classification: G12

Suggested Citation

Li, Jun and Wang, Huijun, The Expected Investment Growth Premium (December 17, 2018). Available at SSRN: or

Jun Li (Contact Author)

University of Texas at Dallas ( email )

800 West Campbell Road, SM 31
Richardson, TX 75080
United States
972-883-4422 (Phone)

Huijun Wang

University of Delaware ( email )

Newark, DE 19711
United States

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