Growth options and related stock market anomalies: Profitability, distress, lotteryness, and volatility

Turan G. Bali, L. Del Viva, Neophytos Lambertides, Lenos Trigeorgis

Research output: Indexed journal article Articlepeer-review

19 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)2150-2180
Number of pages31
JournalJournal of Financial and Quantitative Analysis
Volume55
Issue number7
DOIs
Publication statusPublished - 1 Nov 2020
Externally publishedYes

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