Aggregation, Capital Heterogeneity, and the Investment CAPM

@inproceedings{Gonalves2017AggregationCH,
  title={Aggregation, Capital Heterogeneity, and the Investment CAPM},
  author={Andrei S Gonçalves and Chen Xue and Lu Zhang},
  year={2017}
}
A detailed treatment of aggregation and capital heterogeneity substantially improves the performance of the investment CAPM. Firm-level predicted returns are constructed from firm-level accounting variables and aggregated to the portfolio level to match with portfolio-level stock returns. Working capital forms a separate productive input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums simultaneously and partially explains the positive… CONTINUE READING

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