Abstract

http://ssrn.com/abstract=1988585
 
 

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Asset Growth Reversals and Investment Anomalies


F.Y. Eric C. Lam


Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences; Hong Kong University of Science & Technology - Department of Finance

K. C. John Wei


Hong Kong University of Science & Technology (HKUST) - Department of Finance

January 6, 2013

AFA 2013 San Diego Meetings Paper

Abstract:     
The negative relation between asset growth or investment and future stock returns mainly comes from high- and low-growth firms that reverse their growth in the future. The negative relation does not exist among firms maintaining similar levels of growth. Controlling for past growth, future stock returns are positively related to realized (and unpredicted) future asset growth and profitability. By contrast, the relation between future returns and predicted future asset growth or profitability is somewhat mixed. Our evidence appears to be more consistent with the explanation of style investing with growth preference and extrapolation bias and the unconditional version of the dynamic q-theory and fails to support the overinvestment explanation, the real options explanation, or the conditional version of the dynamic q-theory.

Number of Pages in PDF File: 53

Keywords: Asset growth, Capital investment, Cross section of stock returns, Net share issuance, Profitability

JEL Classification: G14, G31, G32, M41, M42

working papers series


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Date posted: January 20, 2012 ; Last revised: March 18, 2013

Suggested Citation

Lam, F.Y. Eric C. and Wei, K. C. John, Asset Growth Reversals and Investment Anomalies (January 6, 2013). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1988585 or http://dx.doi.org/10.2139/ssrn.1988585

Contact Information

Full Yet Eric Campbell Lam (Contact Author)
Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )
Kowloon Tong, Kowloon
Hong Kong
3411-5218 (Phone)
3411-5585 (Fax)
Hong Kong University of Science & Technology - Department of Finance ( email )
Clear Water Bay, Kowloon
Hong Kong
Kuo-Chiang Wei
Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )
Clear Water Bay, Kowloon
Hong Kong
852 358 7676 (Phone)
852 358 1749 (Fax)
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