@article{5e6b0ec4a9d642438227aea6b88a8f53,
title = "Profitability, asset investment, and aggregate stock returns",
abstract = "We find that aggregate profitability and asset investment exhibit robust joint predictive power for aggregate excess stock returns, consistent with the investment model of Hou, Xue, and Zhang (henceforth HXZ, 2015). These results provide out-of-sample empirical support for HXZ, as the same mechanisms that HXZ use to explain firm-specific variation in stock returns can also be used to explain variation that is market-wide in nature. Also consistent with the HXZ investment model, we find that the growth rate of short-term (long-term) assets exhibits a stronger predictive power for one-year-ahead (two-year-ahead) stock returns.",
keywords = "Aggregate stock return forecasts, Asset growth, Discount rates, Profitability",
author = "Chue, {Timothy K.} and Xu, {Jin Karen}",
note = "Funding Information: We thank two anonymous reviewers, Geert Bekaert (the editor), Jia Chen, Chengbo Fu, Amit Goyal, Campbell Harvey, Byoung Kang, Xiaomeng Lu, Sheridan Titman, Akiko Watanabe, John Wei, Steven Wei, Takeshi Yamada, Wayne Yu, Lu Zhang, and seminar participants at the SFS Cavalcade Asia-Pacific in Beijing, the Greater China Area Finance Conference in Xiamen, China International Conference in Finance in Tianjin, the Asian Finance Association Annual Meeting in Tokyo, and the Hong Kong Polytechnic University for helpful comments, and the General Research Fund of the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No. 15501515) for research support. Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",
year = "2022",
month = oct,
doi = "10.1016/j.jbankfin.2022.106597",
language = "English",
volume = "143",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier B.V.",
}