Lumpy investment and expected stock returns

Hyun Joong Im, Heungju Park

Research output: Contribution to journalArticlepeer-review


This study investigates the predictability of stock market returns using a novel corporate investment measure that captures the lumpiness of firm-level investment. We find that the proportion of firms with investment spikes (spike) is a strong predictor of excess stock returns. Specifically, an increase in spike significantly lowers future excess stock returns. The predictive ability of spike is consistently observed in both in-sample and out-of-sample tests. Furthermore, spike shows strong predictive ability at the business cycle frequency, suggesting that its predictive ability is driven by the time-varying risk premium associated with business cycles rather than temporary mispricing.

Original languageEnglish
Article number109263
JournalEconomics Letters
StatePublished - Aug 2020


  • Investment spike
  • Lumpy investment
  • Stock return predictability
  • Time-varying risk premium


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