Asset Growth a Bad Sign for Stocks Everywhere?

Posted in Fundamental Valuation

 

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…)

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