TY - JOUR
T1 - Growth options and related stock market anomalies
T2 - Profitability, distress, lotteryness, and volatility
AU - Bali, Turan G.
AU - Del Viva, L.
AU - Lambertides, Neophytos
AU - Trigeorgis, Lenos
N1 - Funding Information:
*Bali (corresponding author), [email protected], Georgetown University McDonough School of Business; Del Viva, [email protected], Ramon Llull University ESADE Business School; Lambertides, [email protected], Cyprus University of Technology; and Trigeorgis, [email protected], University of Cyprus, King’s College London, and visiting scholar MIT Sloan School. We are grateful for helpful comments and suggestions from an anonymous referee, Nicholas Baltas, Colin Clubb, Jennifer Conrad (the editor), George Constantinides, John Core, K. Ozgur Demirtas, Irene Karamanou, S. P. Kothari, Andreas Milidonis, Nikos Vafeas, and Kamil Yilmaz. We also benefited from discussions with seminar participants at the Multinational Finance Society Conference, Aalto University, ESADE Business School, Koc University, and Sabanci University. We thank Kenneth French, Lubos Pastor, and Robert Stambaugh for making data publicly available in their online data library. The financial support of AGAUR – SGR 2017-640, Banco Sabadell, and the Spanish Ministry of Science, Innovation and Universities (grant PGC2018–099700-A-100) is also acknowledged. All errors remain our responsibility.
Publisher Copyright:
Copyright © 2019 Michael G. Foster School of Business, University of Washington.
PY - 2020/11/1
Y1 - 2020/11/1
N2 - We provide new evidence on the economic role of growth options behind the profitability, distress, lotteryness, and volatility anomalies. We use idiosyncratic skewness to measure growth options and estimate expected idiosyncratic skewness capturing investors' expectations about the firm's mix of growth options versus assets-in-place. We find that investors require a positive premium to hold stocks of inflexible firms with low growth options and negative expected skewness and that a newly proposed skewness factor based on growth options explains the aforementioned anomalies. Thus, the new measure of expected idiosyncratic skewness may serve to reduce the number of anomalies in the literature.
AB - We provide new evidence on the economic role of growth options behind the profitability, distress, lotteryness, and volatility anomalies. We use idiosyncratic skewness to measure growth options and estimate expected idiosyncratic skewness capturing investors' expectations about the firm's mix of growth options versus assets-in-place. We find that investors require a positive premium to hold stocks of inflexible firms with low growth options and negative expected skewness and that a newly proposed skewness factor based on growth options explains the aforementioned anomalies. Thus, the new measure of expected idiosyncratic skewness may serve to reduce the number of anomalies in the literature.
UR - http://www.scopus.com/inward/record.url?scp=85071248356&partnerID=8YFLogxK
U2 - 10.1017/S0022109019000619
DO - 10.1017/S0022109019000619
M3 - Article
AN - SCOPUS:85071248356
SN - 0022-1090
VL - 55
SP - 2150
EP - 2180
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 7
ER -