The relation between a firm's stock return and its intangible assets is derived under the intangible-asset-augmented q-theory framework. The structural estimation of the model leads to four main results. First, the q-theory augmented with intangible investments captures the value premium and the...

A new factor model consisting of the market factor, an investment factor, and a return-on-equity factor is a good start to understanding the cross-section of expected stock returns. Firms will invest a lot when their profitability is high and the cost of capital is low. As such, controlling for...