Firm Expansion and Stock Price Momentum

Peter M. Nyberg

Aalto University

Salla Pöyry

Hanken School of Economics

June 24, 2013

Review of Finance, Forthcoming

We document a significant and robust connection between firm-level asset changes and return momentum. Momentum profits are large and significant for firms that have experienced large asset expansions or contractions, whereas they otherwise are small and often insignificant. The interaction pattern is not subsumed by previously documented drivers of momentum and shows up in market states where prior literature has documented an absence of momentum profits. Furthermore, we find a positive time-series relationship between aggregate asset growth and return momentum, and the effect of aggregate asset growth is stronger than that of variables related to business cycles and investor sentiment. While most existing models of firm investment and momentum cannot explain our results, recent real options models appear to hold the most promise.

Number of Pages in PDF File: 57

Keywords: Asset growth, momentum

JEL Classification: G12

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Date posted: October 1, 2010 ; Last revised: June 24, 2013

Suggested Citation

Nyberg, Peter M. and Pöyry, Salla, Firm Expansion and Stock Price Momentum (June 24, 2013). Review of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1684767 or http://dx.doi.org/10.2139/ssrn.1684767

Contact Information

Peter Mikael Nyberg (Contact Author)
Aalto University ( email )
P.O. Box 21210
Helsinki, 00101
Salla Pöyry
Hanken School of Economics ( email )
P.O. Box 479
FI-00101 Helsinki, 00101
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