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Title: The role of growth options in explaining stock returns
Authors: Trigeorgis, Lenos 
Lambertides, Neophytos 
Keywords: Asset pricing;Book-to-market;Growth options;Stock returns;Value-size effects
Category: Economics and Business
Field: Social Sciences
Issue Date: 1-Jan-2014
Publisher: Cambridge University Press
Source: Journal of Financial and Quantitative Analysis Volume 96, 26 February 2014
metadata.dc.doi: 10.1017/S0022109014000118
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, BMis not that significant. Our growth options variables have added explanatory power.
ISSN: 00221090
Rights: Copyright 2014, Michael G. Foster School of Business, University of Washington.
Type: Article
Appears in Collections:Άρθρα/Articles

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