Asset Growth Anomaly & Future Stock Return; Evidence from Tehran Stock Exchange

Document Type : Research Paper

Author

Assistant Prof., Finance, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran

Abstract

This paper investigates asset growth pricing in firm-level cross section stock return in Tehran Stock Exchange for the period from 1379 to 1389. In order to test cross section stock return predictability by the firm's asset growth, the relation between asset growth rate and subsequent stock return is examined in a sample of 280 firms using portfolio analysis approach and Fama-Macbeth (1973) regression model. Unlike previous findings in developed and developing markets, the results of this study suggest that stocks with high past asset growth rate experience high future return. However, by contraction of total sample to the big firms, the relation is positive and statistically insignificant. The results of this paper are robust for different future stock return time horizons.

Keywords

Main Subjects


Anderson, C. W. & Garcia-Feijoo, L. (2006). Empirical Evidence on Capital Investment, Growth Options, and Security Returns. Journal of Finance, 61(1): 171–194.
Berk, J. B., Green, R. C. & Naik, V. (1999). Optimal Investment, Growth Options, and Security Returns. Journal of Finance, 54(5): 1553–1607.
Carhart, M. M. (1997). On Persistence in Mutual Fund Performance. Journal of Finance, 52(1): 57–82.
Chen, L., Novy-Marx, R. & Zhang, L. (2011). An alternative three-factor model, Working Paper, Ohio State University, unpublished.
Cooper, I. & Priestley, R. (2011). Real investment and risk dynamics. Journal of Financial Economics, 101(1): 182-205.
Cooper, M. J., Gulen, H. & Schill, M. J. (2008). Asset Growth and the Cross-Section of Stock Returns. Journal of Finance, 63(4): 1609-1651.
Fama, E. F. & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics,33(1): 3-56.
Fama, E. F. & MacBeth, J. (1973). Risk, return, and equilibrium: Empirical tests. Journal of Political Economy, 81(3): 607-636.
Gray, P. & Johnson, J. (2011). The relationship between asset growth and the cross-section of stock returns. Journal of Banking & Finance, 35(3): 670-680.
Li, E.X., Livdan, D. & Zhang, L. (2009). Anomalies. Review of Financial Studies, 22(11): 2973–3004.
Lipson, M., Mortal, L. S. & Schill, M. J. (2011). On the Scope and Drivers of the Asset Growth Effect. Journal of Financial and Quantitative Analysis, 46 (6): 1651-1682.
Merton, R. C. (1973). An Intertemporal Capital Asset Pricing Model. Econometrica, 41(5): 867-887.
Pollito, J. (2012). A Market Anomaly in the Mexican Stock Returns. Unpublished master’s thesis. Premio Nacional BMV.
Titman, S., Wei, K.C. & Xie, F. (2004). Capital investment and stock returns. Journal of Financial and Quantitative Analysis, 39(4): 677–701.
Yao, T., Yu, T., Zhang, T. & Chen, S. (2011). Asset growth and stock returns: Evidence from Asian financial markets. Pacific-Basin Finance Journal, 19(1): 115-139.