Asset growth, profitability, and investment opportunities

Ilan Cooper, Paulo Maio

Research output: Contribution to journalArticlepeer-review


We show that recent prominent equity factor models are to a large degree compatible with the Intertemporal CAPM (ICAPM) framework. Factors associated with alternative profitability measures forecast the equity premium in a way that is consistent with the ICAPM. Several factors based on firms’ asset growth predict a significant decline in stock market volatility, thus being consistent with their positive prices of risk. The investment-based factors are also strong predictors of an improvement in future economic activity. The time-series predictive ability of most equity state variables is not subsumed by traditional ICAPM state variables. Importantly, factors that earn larger risk prices tend to be associated with state variables that are more correlated with future investment opportunities or economic activity. Moreover, these risk price estimates can be reconciled with plausible risk-aversion parameter estimates. Overall, the ICAPM can be used as a common theoretical background for recent multifactor models.

Original languageEnglish
Pages (from-to)3988-4010
Number of pages23
JournalManagement Science
Issue number9
StatePublished - 1 Sep 2019
Externally publishedYes

Bibliographical note

Funding Information:
The authors thank two anonymous referees, an anonymous associate editor, Karl Diether (the department editor), Jean-Sebastien Fontaine, Benjamin Holcblat, Soren Hvidkjaer, Markku Kaustia, Matthijs Lof, Salvatore Miglietta, Johann Reindl, and Costas Xiouros, as well as participants at the 2015 BEROC Conference (Minsk), 2015 FEBS Conference (Nantes), 2015 EFA (Vienna), BI CAPR Seminar, Helsinki Finance Seminar (Aalto University), 2016 MFA (Atlanta), and 2016 WFC (New York) for helpful comments. The authors are grateful to Kenneth French, Amit Goyal, Robert Novy-Marx, Robert Shiller, and Lu Zhang for providing stock market and economic data. A previous version of this paper was titled “Equity Risk Factors and the Intertemporal CAPM.” Any remaining errors are our own.

Publisher Copyright:
© 2019 INFORMS.


  • Asset pricing models
  • Cross section of stock returns
  • Equity risk factors
  • Intertemporal CAPM
  • Predictability of stock returns
  • Stock market anomalies

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research


Dive into the research topics of 'Asset growth, profitability, and investment opportunities'. Together they form a unique fingerprint.

Cite this