Cash, Investments and Asset Returns

Department or Administrative Unit

IT and Administrative Management

Document Type

Article

Author Copyright

Copyright © 2009 Elsevier B.V. All rights reserved.

Publication Date

12-2009

Journal

Journal of Banking and Finance

Abstract

We use an investment-based asset pricing model to examine the effect of firms’ investments relative to cash holdings on stock returns, assuming holding cash lowers transaction costs. We find that mimicking portfolios based on investments relative to non-cash capital and based on investments relative to cash capital are priced for various testing portfolios. On average, momentum stocks and growth stocks are more sensitive to the factor constructed using investment relative to cash.

Comments

This article was originally published in Journal of Banking & Finance. The full-text article from the publisher can be found here.

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