The profitability and investment premium: Pre-1963 evidence

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27 Scopus citations


I investigate the profitability and investment premium in stock returns using hand-collected data from Moody's Manuals for 1940–1963. Controlling for value, the profitability premium emerges as important in this period. In contrast, there is no reliable relation between investment and returns, regardless of whether investment is measured using growth in total assets or book equity and even after extending the data back to 1926. In spanning regressions, factors constructed from profitability and book-to-market ratios (RMW and HML, respectively) improve the mean-variance efficient tangency portfolio but the investment factor (CMA) does not.

Original languageEnglish (US)
Pages (from-to)362-377
Number of pages16
JournalJournal of Financial Economics
Issue number2
StatePublished - Feb 2019


  • Asset pricing
  • Dividend discount model
  • Investment
  • Multifactor models
  • Profitability

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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