Investing in the Asset-Growth Anomaly Across the Globe

December 09, 2015
  • Contributors:

    Xi Li, Rodney N. Sullivan
  • Topic:

    Equities, Style Investing

Jounal of Investment Management

Several studies have show that slow-growing companies return more to stock-market investors than fast-growing companies, based on the growth in the book value of companies’ assets. In this paper, we explore how investors can capture the excess returns associated with this “asset-growth effect.”

We confirm that the asset-growth effect is present in international markets with strong predictive power coming from the straightforward two-year total asset growth measurement. We also confirm that the effect persists across time, in different subsample periods, and is present among both large and small firms. We also show that the asset-growth effect meaningfully affects a firm’s performance for up to three years.

We further provide insight into the risk associated with the asset-growth effect; in particular whether the effect can be attributable to a market mispricing or to some systematic market risks, such as governance or market accessibility. Overall, we believe that our results tend to favor the mispricing explanation over that of systematic risk, perhaps because investors overreact to transient asset-growth rates only to be disappointed when growth and stock returns revert to a more normal level.

Harvesting these returns is another matter, however. Using a host of proxies for arbitrage costs and arbitrage risks, we find that the effect is more prevalent among small and illiquid stocks with greater idiosyncratic volatility. These arbitrage costs reduce the opportunity to extract excess returns.



  • AQR Capital Management, LLC, (“AQR”) provide links to third-party websites only as a convenience, and the inclusion of such links does not imply any endorsement, approval, investigation, verification or monitoring by us of any content or information contained within or accessible from the linked sites. If you choose to visit the linked sites, you do so at your own risk, and you will be subject to such sites' terms of use and privacy policies, over which AQR.com has no control. In no event will AQR be responsible for any information or content within the linked sites or your use of the linked sites.

  • The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees.

    This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.

  • Certain publications may have been written prior to the author being an employee of AQR.