Firm Expansion and Stock Price Momentum

Abstract:     
We document a significant and robust connection between firm-level asset expansion and stock price momentum. Momentum profits are large and significant within groups of firms that have experienced large asset expansions or contractions, whereas they are small and often insignificant within groups of firms with smaller changes in assets. The interaction between asset growth and momentum is not subsumed by and often dominates previously documented cross-sectional drivers of momentum, and it shows up in various market states where prior literature has documented an absence of momentum profits. Furthermore, we find a positive time-series relationship between aggregate firm asset expansion and return momentum. Current theories aiming to explain the momentum effect do not appear to be compatible with our results.

Number of Pages in PDF File: 61

Keywords: Asset growth, momentum

JEL Classification: G12

working papers series