54 Pages Posted: 26 Jul 2005
Date Written: July 10, 2007
We test for firm-level asset investment effects in returns by examining the cross-sectional relation between firm asset growth and subsequent stock returns. As a test variable, we use the year-on-year percentage change in total assets. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks, a subgroup of firms for which other documented predictors of the cross-section lose much of their predictive ability. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.
Keywords: Firm asset growth, stock returns, market efficiency
JEL Classification: G14, G31
Suggested Citation: Suggested Citation
Cooper, Michael J. and Gulen, Huseyin and Schill, Michael J., Asset Growth and the Cross-Section of Stock Returns (July 10, 2007). AFA 2007 Chicago Meetings Paper. Available at SSRN: https://ssrn.com/abstract=760967 or http://dx.doi.org/10.2139/ssrn.760967
By Lu Zhang