Market Development and the Asset Growth Effect: International Evidence

2013 ◽  
Vol 48 (5) ◽  
pp. 1405-1432 ◽  
Author(s):  
Sheridan Titman ◽  
K. C. John Wei ◽  
Feixue Xie
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Growth Effect ◽  
Market Development ◽  
International Evidence ◽  
Q Theory ◽  
Asset Growth ◽  
Financial Market Development ◽  
Cross Country ◽  
The Cost

AbstractA number of studies of U.S. stock returns document what is referred to as the investment or asset growth effect. Specifically, firms that increase investment or total assets subsequently earn lower risk-adjusted returns. This study finds substantial cross-country differences in the asset growth effect. In particular, the asset growth effect is stronger in countries with more developed financial markets, but it does not seem to be associated with corporate governance or the costs of trading. Overall, the evidence is consistent with a q-theory where financial market development captures either managers’ willingness or ability to align investment expenditures to the cost of capital, but it is inconsistent with the hypothesis that the asset growth effect is due to bad governance and overinvestment.

The Asset Growth Effect in Stock Returns

2009 ◽  
Author(s):  
Michael J. Cooper ◽  
Huseyin Gulen ◽  
Michael J. Schill
Keyword(s):  
Stock Returns ◽  
Growth Effect ◽  
Asset Growth

scholarly journals Analysis of Asset Growth Anomaly on Cross-Section Stock Returns: Evidence from Indonesia Stock Exchange

2017 ◽  
Vol 20 (1) ◽  
pp. 47
Author(s):  
Muhammad Iqbal ◽  
Buddi Wibowo
Keyword(s):  
Risk Factor ◽  
Stock Returns ◽  
Cross Section ◽  
Stock Prices ◽  
Stock Exchange ◽  
High Growth ◽  
Growth Effect ◽  
Market Anomalies ◽  
Growth Anomaly ◽  
Asset Growth

Assorted types of market anomalies occur when stock prices deviate from the prediction of classical asset pricing theories. This study aims to examine asset growth anomaly where stocks with high asset growth will be followed by low returns in the subsequent periods. This study, using Indonesia Stock Exchanges data, finds that an equally-weighted low-growth portfolio outperforms high-growth portfolio by average 0.75% per month (9% per annum), confirming existence of asset growth anomaly. The analysis is extended at individual stock-level using fixed-effect panel regression in which asset growth effect remains significant even with controlling other variables of stock return determinants. This study also explores further whether asset growth can be included as risk factor. Employing two-stage cross-section regression in Fama and Macbeth (1973), the result aligns with some prior studies that asset growth is not a new risk factor; instead the anomaly is driven by mispricing due to investors’ overreaction and psychological bias. This result imply that asset growth anomaly is general phenomenon that can be found at mostly all stock market but in Indonesia market asset growth anomaly rise from investors’ overreaction, instead of  playing as a factor of risk.

scholarly journals On the Asymmetries of Sovereign Credit Rating Announcements and Financial Market Development in the European Region

2019 ◽  
Vol 11 (23) ◽  
pp. 6636 ◽  
Author(s):  
Chunling Li ◽  
Khansa Pervaiz ◽  
Muhammad Asif Khan ◽  
Faheem Ur Rehman ◽  
Judit Oláh
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Credit Rating ◽  
Market Development ◽  
European Region ◽  
Short Term ◽  
Sovereign Credit ◽  
Financial Market Development ◽  
The Impact ◽  
Sovereign Credit Rating

In modeling the impact of sovereign credit rating (CR) on financial markets, a considerable amount of the literature to date has been devoted to examining the short-term impact of CR on financial markets via an event-study methodology. The argument has been established that financial markets are sensitive to CR announcements, and market reactions to such announcements (both upgrading and degrading) are not the same. Using the framework of an autoregressive distributed lag setting, the present study attempted to empirically test the linear and non-linear impacts of CR on financial market development (FMD) in the European region. Nonlinear specification is capable to capture asymmetries (upgrades and downgrades) in the estimation process, which have not been considered to date in financial market literature. Overall findings identified long-term asymmetries, while there was little evidence supporting the existence of short-term asymmetries. Thus, the present study has extended the financial market literature on the subject of the asymmetrical impact of a sovereign CR on European FMD and provides useful input for policy formation taking into account these nonlinearities. Policies solely based upon linear models may be misleading and detrimental.

scholarly journals Analysis of Asset Growth Anomaly on Cross-Section Stock Returns: Evidence from Indonesia Stock Exchange

2017 ◽  
Vol 19 (3) ◽  
Author(s):  
Muhammad Iqbal ◽  
Buddi Wibowo
Keyword(s):  
Risk Factor ◽  
Stock Returns ◽  
Cross Section ◽  
Stock Prices ◽  
Stock Exchange ◽  
High Growth ◽  
Growth Effect ◽  
Market Anomalies ◽  
Growth Anomaly ◽  
Asset Growth

Assorted types of market anomalies occur when stock prices deviate from the prediction of classical asset pricing theories. This study aims to examine asset growth anomaly where stocks with high asset growth will be followed by low returns in the subsequent periods. This study, using Indonesia Stock Exchanges data, finds that an equally-weighted low-growth portfolio outperforms high-growth portfolio by average 0.75% per month (9% per annum), confirming existence of asset growth anomaly. The analysis is extended at individual stock-level using fixed-effect panel regression in which asset growth effect remains significant even with controlling other variables of stock return determinants. This study also explores further whether asset growth can be included as risk factor. Employing two-stage cross-section regression in Fama and Macbeth (1973), the result aligns with some prior studies that asset growth is not a new risk factor; instead the anomaly is driven by mispricing due to investors’ overreaction and psychological bias. This result imply that asset growth anomaly is general phenomenon that can be found at mostly all stock market but in Indonesia market asset growth anomaly rise from investors’ overreaction, instead of  playing as a factor of risk.

Asset Growth Effect and Q Theory of Investment

2020 ◽  
Author(s):  
Leonid Kogan ◽  
Jun Li ◽  
Xiaotuo Qiao
Keyword(s):  
Growth Effect ◽  
Q Theory ◽  
Asset Growth

Asset growth and stock returns: Evidence from Asian financial markets

2011 ◽  
Vol 19 (1) ◽  
pp. 115-139 ◽  
Author(s):  
Tong Yao ◽  
Tong Yu ◽  
Ting Zhang ◽  
Shaw Chen
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Asset Growth

Asset Growth and Stock Returns: Evidence from Asian Financial Markets

2010 ◽  
Author(s):  
Tong Yao ◽  
Tong Yu ◽  
Ting Zhang ◽  
Shaw Chen
Keyword(s):  
Financial Markets ◽  
Stock Returns ◽  
Asset Growth

scholarly journals Asset growth and stock return: evidence in the Brazilian market

2018 ◽  
Vol 29 (78) ◽  
pp. 418-434
Author(s):  
Márcio André Veras Machado ◽  
Robert William Faff
Keyword(s):  
Risk Factor ◽  
Asset Pricing ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Operating Performance ◽  
Growth Effect ◽  
Capital Investments ◽  
Limits To Arbitrage ◽  
Asset Growth

Abstract Empirical evidence suggests that firms which have experienced fast growth, through increased external funding and by making capital investments and acquisitions, tend to show bad operating performance and lower stock returns, whereas firms that have experienced contraction, through divestiture, share repurchase and debt retirement, tend to show good operating performance and higher stock returns. So, this study aimed to analyze the relationship between asset growth and stock return in the Brazilian stock market, and it tested the hypothesis that asset growth is negatively related to future stock return. To do this, the methodology was divided into 3 steps: verifying 1) if asset growth anomaly exists; 2) if this relation may be explained by the investment friction hypothesis and/or by the limits-to-arbitrage hypothesis; and 3) if asset growth is a risk factor or mispricing. In addition, the analysis was carried out both at a portfolio level and an individual assets level. The sample included all the non-financial firms listed at B3 from June 1997 to June 2014. As for the main results, this study found that the asset growth effect exists, both at the portfolio level and the individual assets level, although it is sensitive to the proxy. About the effect’s materiality, this study concluded that the asset growth effect is not economically relevant, since it is not observed in big firms, regardless of the proxy used, a fact that makes it difficult to explore this effect. Another finding is that the asset growth effect may not be related to the limits-to-arbitrage hypothesis and to the financial constraint hypothesis; also, this effect may be considered a risk factor, suggesting that the investment effect documented in the Brazilian stock market may be explained by the rational asset pricing perspective. Therefore, capital market professionals should take into account the asset growth factor in asset pricing models for better investment risk assessment.

Sign in / Sign up

Export Citation Format

Share Document