In this paper, we hypothesize that if the negative relationship between asset growth and stock returns is due to mispricing, it should be more pronounced and more persistent when there are more severe limits to arbitrage. The empirical evidence supports our hypothesis. Our findings are not due...

Several studies have documented that companies that increase capital investments or grow their total assets subsequently earn substantially lower risk-adjusted returns. While some studies attribute this phenomenon to investors' initial underreactions to overinvestments pursued by managers who...

Several studies document a robust negative association between net external financing and average stock returns, which is referred to as the external financing effect. Using total asset growth as a comprehensive measure of overall corporate investment and total profitability gross of Ramp;D...

Based on U.S. stock returns from 1973 to 2015, this study found that the asset growth anomaly does not seem to be pervasive and investable. The trading strategy is robust only among a tiny portion of the equity market in terms of both number of stocks and capitalization. In addition to...

This study comprehensively reexamines the debate over behavioral and rational explanations for the investment effect in an updated sample. We closely follow the previous literature and provide several differences. All our tests include five prominent measures of corporate investment and...

Macroeconomic risks only partially capture the profitability premium, while adding a misvaluation factor based on investor sentiment helps explain a substantial amount of it. The profitability premium mainly exists in firms whose market valuations are inconsistent with their profitability and...

Macroeconomic risks only partially capture the profitability premium, while adding a misvaluation factor based on investor sentiment helps explain a substantial amount of it. The profitability premium mainly exists in firms whose market valuations are inconsistent with their profitability and...

The risk premium based on the cross sectional stock returns measured by a composite expected return signal displays closely similar winter vs. summer seasonal pattern as the market return does. We observe similar seasonal pattern for the signal component market value of equity, the...

It is well known that the market-to-book equity ratio and total asset growth are negatively associated with future stock returns. Much less known is that the predictabilities are related through the mispricing channel. We show that the growth-value anomaly is governed by ex-ante total asset...

We measure ex-ante expectation errors by identifying sporadic versus persistent total asset growth ex-ante. Corporate profitability of high (low) asset-growth firms remains inferior (superior) after temporary asset expansion (contraction), hence ex-ante expectation errors are high. Corporate...