Extreme Stock Market Performers, Part III: What are their Observable Characteristics?
22 Pages Posted: 22 Jul 2020
Date Written: July 21, 2020
Firms with the best decade-horizon shareholder outcomes differ substantially on average from other firms in terms of characteristics that can be observed and objectively measured during the same decade. Most notably, top-performing firms have rapid asset growth, and in particular have strong cash accumulation. Top-performing firms are more profitable on average, despite higher R&D spending. Top performing firms in terms of accumulated rates of return tend to be younger and have more volatile returns as compared to more ordinary firms, while top performing firms in terms of dollar shareholder wealth creation tend to be older and do not have particularly volatile returns. The skewness of monthly returns does not have significant explanatory power for which firms have extremely strong decade-horizon outcomes.
Keywords: Long Horizon Returns, Shareholder Wealth, Technology Stocks
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