ANALYSIS OF ASSET GROWTH ANOMALY ON CROSS-SECTION STOCK RETURNS: EVIDENCE FROM INDONESIA STOCK EXCHANGE

Abstract

Assorted types of market anomalies occur when stock prices deviate from the prediction of classical asset pricing theories. This study aims to examine asset growth anomaly where stocks with high asset growth will be followed by low returns in the subsequent periods. This study finds that an equally-weighted low-growth portfolio outperforms high-growth portfolio by average 0.75% per month (9% per annum). The analysis is extended at individual stock-level using fixed-effect panel regression in which asset growth effect remains significant even with controlling other variables of stock return determinants. This study also explores further whether asset growth can be included as risk factor. Employing twostage cross-section regression in Fama and Macbeth (1973), the result aligns with prior studies that asset growth is not a new risk factor; instead the anomaly is driven by mispricing due to investors’ behavior