Intangibles Investment and Asset Quality

85 Pages Posted: 30 Mar 2023 Last revised: 23 Dec 2023

See all articles by Ravi Jagannathan

Ravi Jagannathan

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF); Indian School of Business (ISB), Hyderabad

Robert A. Korajczyk

Northwestern University - Kellogg School of Management

Kai Wang

Northwestern University

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2023

Abstract

A factor using an earnings measure treating intangible and physical investments symmetrically represents “quality.” It has smaller left tail risk and co-tail risk with the market than does RMW of Fama and French (2015) and has lower down-market than up-market exposure. Our factor has significant alpha relative to many extant multi-factor asset-pricing models, including the Fama-French model (α = 2.9%). Its performance is due to superior asset selection (market timing) on the long (short) side. When the profitability factor in the Fama-French model is replaced with our factor the resulting model performs better in explaining both the cross section of stock returns and several extant anomalies.

Keywords: Profitability Prediction, Intangible Assets, Return Factors, Asset Pricing

JEL Classification: G11, G12

Suggested Citation

Jagannathan, Ravi and Korajczyk, Robert A. and Wang, Kai, Intangibles Investment and Asset Quality (December 20, 2023). Available at SSRN: https://ssrn.com/abstract=4394069 or http://dx.doi.org/10.2139/ssrn.4394069

Ravi Jagannathan

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
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Evanston, IL 60208
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National Bureau of Economic Research (NBER)

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Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
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Shanghai, 200030
China

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Robert A. Korajczyk

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Kai Wang (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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