Empirical Evidence on Capital Investment, Growth Options, and Security Returns
- 20 January 2006
- journal article
- Published by Wiley in The Journal of Finance
- Vol. 61 (1), 171-194
- https://doi.org/10.1111/j.1540-6261.2006.00833.x
Abstract
Growth in capital expenditures conditions subsequent classification of firms to portfolios based on size and book-to-market ratios, as in the widely used Fama and French (1992, 1993) methods. Growth in capital expenditures also explains returns to portfolios and the cross section of future stock returns. These findings are consistent with recent theoretical models (e.g., Berk, Green, and Naik (1999)) in which the exercise of investment-growth options results in changes in both valuation and expected stock returns.Keywords
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