Do inventory dynamics predict stock returns? An empirical examination of Indian manufacturing firms
by Tariq Aziz; Lamay Bin Sabir
International Journal of Services and Operations Management (IJSOM), Vol. 42, No. 3, 2022

Abstract: This paper aims to examine the relationship between inventory dynamics and long-term future stock returns in the Indian stock market both at the aggregate market and industry-level. The authors follow the portfolio formation methodology to probe the link between inventory metrics and stock returns. The results show that higher abnormal inventory growth is associated with lower future stock returns. This effect is heterogeneous across industries and exists primarily in automobile, textile, agriculture products and plastic products industries. Further, inventory turnover exhibits a weak relation with the future stocks returns implying that this information is already incorporated in the prices. The results show that abnormal inventory growth contains information regarding future stock returns and hence this result has implications for investors. This study extends the empirical literature on the relationship between inventory related metrics and stock returns in general and fills the empirical void in the Indian context on the same.

Online publication date: Thu, 21-Jul-2022

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