Aretz, Kevin and Kagkadis, Anastasios 
ORCID: 0000-0002-3840-5981
(2025)
Construction, Real Uncertainty, and Stock-Level Investment Anomalies
Journal of Financial and Quantitative Analysis, 60 (2).
pp. 1042-1073.
ISSN 0022-1090, 1756-6916
Abstract
We show that the negative relation between real investments and future stock returns is primarily driven by the subsample of firms building additional capacity. We develop a real options model to rationalize that evidence based on the premise that firms need to learn how to best operate modern capacity vintages, inducing idiosyncratic uncertainty in that capacity's production costs over the learning period. Conversely, the uncertainty lowers the expected return of firms with newly built capacity until it is resolved. Further evidence based on profit sensitivities to aggregate conditions; analyst forecast-error volatilities; and high-versus low-Tech industry subsamples supports our uncertainty explanation.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | 3502 Banking, Finance and Investment, 35 Commerce, Management, Tourism and Services, 3507 Strategy, Management and Organisational Behaviour, 9 Industry, Innovation and Infrastructure |
| Divisions: | Faculty of Humanities & Social Sciences > School of Management |
| Depositing User: | Symplectic Admin |
| Date Deposited: | 06 Jun 2024 15:39 |
| Last Modified: | 28 Feb 2026 01:19 |
| DOI: | 10.1017/S0022109024000024 |
| Open Access URL: | https://doi.org/10.1017/S0022109024000024 |
| Related Websites: | |
| URI: | https://livrepository.liverpool.ac.uk/id/eprint/3182074 |
| Disclaimer: | The University of Liverpool is not responsible for content contained on other websites from links within repository metadata. Please contact us if you notice anything that appears incorrect or inappropriate. |
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