2014/02/26 by Lenos Trigeorgis, Neophytos Lambertides · 87 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Mathematics · #Corporate Finance and Governance #Econometrics #Economics #Explanatory power #Finance #Financial Markets and Investment Strategies #Financial Reporting and Valuation Research #Financial economics #Growth stock #Leverage (statistics) #Market maker #Mathematics #Monetary economics #Predictive power #Proxy (statistics) #Statistics #Stock (firearms) #Stock exchange #Stock market
paper · doi:10.1017/s0022109014000118
published in Journal of Financial and Quantitative Analysis 49(3), 749-771 (Cambridge University Press)
openalex publication_date 2014/02/26 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/15
Abstract We extend the Fama-French (1992) model by considering growth option (as well as distress/leverage) variables in explaining the cross section of stock returns. We find that growth option variables, namely growth in capital investment and yet-unexercised growth options (GO), are significantly and negatively related to stock returns. Investors may be willing to accept lower average returns from growth stocks in exchange for a more favorable (positively skewed) risk-return profile. Book-to-market (BM) ratio seems to proxy for omitted distress/leverage variables. When these are explicitly accounted for, BM is not that significant. Our growth options variables have added explanatory power.