Asset Growth a Bad Sign for Stocks Everywhere?
Posted in Fundamental Valuation
March 26, 2013
Does the asset growth effect (growth is bad) exist in non-U.S. equity markets? In their July 2012 paper entitled “The Asset Growth Effect: Insights from International Equity Markets”, Akiko Watanabe, Yan Xu, Tong Yao and Tong Yu investigate the asset growth effect in and across international stock markets. They consider two tests, both based on annual data available as of the end of June each year: (1) form portfolios of stocks ranked in deciles (tenths) by asset growth rate within countries and pooled across countries, and calculate next-year average gross portfolio returns; and, (2) within each country, regress next-year gross stock return versus asset growth rate. Using return and asset data for non-financial stocks in 43 country markets (including the U.S.) that have at least 30 qualifying stocks during July 1982 through June 2010, they find that: (more…)