The Asset Growth Effect: Insights from International Equity Markets

07/2012; DOI: 10.2139/ssrn.1787237

ABSTRACT Firms with higher asset growth rates subsequently experience lower stock returns in international equity markets, consistent with the U.S. evidence. This negative effect of asset growth on returns is stronger in more developed capital markets and markets where stocks are more efficiently priced, but is unrelated to country characteristics representing limits to arbitrage, investor protection, and accounting quality. The evidence suggests that the cross-sectional relation between asset growth and stock return is more likely due to an optimal investment effect than due to over-investment, market timing, or other forms of mispricing.

  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: A large body of literature suggests that firm-level stock prices "underreact" to news about future cash flows. We estimate a vector autoregession to examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Our main finding is that institutions buy shares from individuals in response to good cash-flow news, thus exploiting the underreaction phenomenon. Institutions are not simply following price momentum strategies: When price goes up in the absence of positive cash-flow news, institutions sell shares to individuals. The response of institutional ownership to cash-flow news is weaker for small stocks. Since small stocks also exhibit the strongest underreaction patterns, this finding is consistent with institutions facing exogenous constraints in trading small stocks.
    Journal of Financial Economics 02/2002; 66(2-3):409-462. · 3.72 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The existing literature on the post-merger performance of acquiring firms is divided. The authors reexamine this issue, using a nearly exhaustive sample of mergers between NYSE acquirers and NYSE/AMEX targets. The authors find that stockholders of acquiring firms suffer a statistically significant loss of about 10 percent over the five-year post- merger period, a result robust to various specifications. Their evidence suggests that neither the firm size effect nor beta estimation problems are the cause of the negative post-merger returns. They examine whether this result is caused by a slow adjustment of the market to the merger event. Their results do not seem consistent with this hypothesis. Copyright 1992 by American Finance Association.
    The Journal of Finance 02/1992; 47(4):1605-21. · 4.22 Impact Factor
  • [Show abstract] [Hide abstract]
    ABSTRACT: Arbitrage costs lead to large deviations of prices from fundamentals. Using a sample of closed-end funds, I find that the market value of a fund is more likely to deviate from the value of its assets ( 1) for funds with portfolios that are difficult to replicate, (2) for funds that pay out smaller dividends, (3) for funds with lower market values, and (4) when interest rates are high. These factors are related to the magnitude of the deviation, as opposed to the direction (i.e., whether discount or premium), and explain a quarter of cross-sectional mispricing variation. These findings are consistent with noise trader models of asset pricing. Copyright 1996, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
    The Quarterly Journal of Economics. 02/1996; 111(4):1135-51.


Available from