"Momentum is consistent with value maximization of firms. The neoclassical theory of investment implies that expected stock returns are connected with expected marginal benefits of investment divided by marginal costs of investment. Winners have higher expected growth and expected marginal...

The neoclassical q-theory is a good start to understand the cross section of returns. Under constant return to scale, stock returns equal levered investment returns that are tied directly with characteristics. This equation generates the relations of average returns with book-to-market,...

We offer an investment-based explanation of momentum. The neoclassical theory of investment implies that expected stock returns are related to expected investment returns, defined as the next-period marginal benefits of investment divided by the current-period marginal costs of investment....