22 Pages Posted: 31 Jan 2009
Date Written: January 30, 2009
We document a strong negative relationship between the growth of total firm assets and subsequent firm stock returns using a broad sample of U.S. stocks. Over the past 40 years, low asset growth stocks have maintained a return premium of 20% per year over high asset growth stocks. The asset growth return premium begins in January following the measurement year and persists for up to five years. The firm asset growth rate maintains an economically and statistically important ability to forecast returns in both large capitalization and small capitalization stocks. In the cross-section of stock returns, the asset growth rate maintains large explanatory power with respect to other previously documented determinants of the cross-section of returns (i.e., size, prior returns, book-to-market ratios). We conclude that risk-based explanations have some difficulty in explaining such a large and consistent return premium.
Keywords: Asset growth, Cross-section of stock returns
JEL Classification: G14
Suggested Citation: Suggested Citation
Cooper, Michael J. and Gulen, Huseyin and Schill, Michael J., The Asset Growth Effect in Stock Returns (January 30, 2009). Darden Business School Working Paper No. 1335524. Available at SSRN: https://ssrn.com/abstract=1335524 or http://dx.doi.org/10.2139/ssrn.1335524
By Lu Zhang