Investment-related anomalies in Australia: evidence and explanations

This paper documents the existence of five investment-related anomalies in the Australian market. Cross-sectional stock returns are negatively related to each of asset growth, net operating assets, inventory growth and investment-to-assets, and positively related to asset tangibility. While the investment-return relation is theoretically motivated by q-theory, there is only support for the q-theory explanation in relation to the investment-to-assets effect. Limits to arbitrage appear to be a factor in the asset-tangibility effect, where the mispricing can be traced to the over-pricing of stocks with high levels of goodwill.