Abstract

http://ssrn.com/abstract=1988585
 
 

References (43)



 


 



Betting on Total Asset Growth Reversal: The Role of Style Investing and Extrapolation Bias


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

August 15, 2014

AFA 2013 San Diego Meetings Paper

Abstract:     
We examine implications of investors’ extrapolation bias combined with irrational demand for stocks based on asset growth categorization and fund reallocation driven by migration of stocks across these salient styles. The conventional long-short strategy is essentially a simple bet on cross-sectional mean reversion in asset growth, which is a necessary condition for the asset growth effect. When the initial sign of asset growth reversal is strong (weak) prior to the holding period, the asset growth effect is weak (strong). Finally, when past information is incorporated to improve the signal of asset growth reversal, the asset growth effect more than doubles.

Number of Pages in PDF File: 59

Keywords: Asset growth reversal, Capital investment, Cross section of stock return, Mean reversion

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

working papers series


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Date posted: January 20, 2012 ; Last revised: August 15, 2014

Suggested Citation

Lam, F.Y. Eric C. and Wei, K. C. John, Betting on Total Asset Growth Reversal: The Role of Style Investing and Extrapolation Bias (August 15, 2014). 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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