Abstract
This paper provides new evidence about the link between firm level total factor productivity (TFP) and stock returns. We estimate firm level TFP and show that it is strongly related to several firm characteristics such as size, the book to market ratio, investment, and hiring rate. Low productivity firms earn a significant premium over high productivity firms in the following year, and this premium is countercyclical. We show that a production based asset pricing model calibrated to match the cross section of measured firm level TFPs can replicate the empirical relationship between TFP, many firm characteristics, and stock returns. Our results offer an explanation as to how these firm characteristics rationally predict returns.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callSimilar Papers
More From: SSRN Electronic Journal
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
