Style Investing Using Asset Growth

Main Article Content

Saranon Umchumrit
Rojana Thammajinda
Santi Kiranand

Abstract

The objective of this study is to investigate the ‘Style Investing’ that used the asset growth (AG) as a deciding factor and the market value of common stocks (Size) to create a 5x5 AG-Size style portfolios.  Later, the researchers used the past 6 and 12 month average return of 5x5 AG-Size style portfolios to predict the future return of individual stocks inside that portfolios, and then applied this relationship to the momentum strategy to measure how much the benefits that investors can earn.


The result shows that the past 6 and 12 month average return of 5x5 AG-Size style portfolios are jointly predicting the future 6 and 12 month individual stock returns significantly with a negative relationship, while the explanatory power of the past average return of Size-BM style portfolios totally disappears.


Since the relationship between the past average return of AG-Size style portfolios and the future return of individual stocks are in the opposite direction, the momentum profit cannot be generated based on these assumptions. However, investors can use the contrarian strategy (buy loser and sell winner portfolio) to generate significantly raw returns up to 31% in the 12 month holding periods.

Downloads

Download data is not yet available.

Article Details

Section
Research Articles

References

Barberis, N., & Shleifer, A. (2003). Style investing. Journal of Financial Economics, 68(2), 161–199.
Chou, P. H., Ko, K. C., & Yang, N. T. (2019). Asset growth, style investing, and momentum. Journal of Banking and Finance, 98, 108-124.
Cooper, M. J., Gulen, H., & Schill, M. J. (2008). Asset growth and the cross-Section of stock returns. Journal of Finance, 63(4), 1609–1651.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.
Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance, 48(1), 65–91.
Lohitanon, K. (2015). Satai ʻinwētting khō̜ng nak longthun tǣla praphēt nai prathēt Thai [Style investing of various investor types in Thailand] (Master’s thesis, Chulalongkorn University).
Wahal, S., & Yavuz, M. D. (2013). Style investing, comovement and return predictability. Journal of Financial Economics, 107(1), 136–154.
Yao, T., Yu, T., Zhang, T., & Chen, S. (2011). Asset growth and stock returns: Evidence from Asian financial markets. Pacific-Basin Finance Journal, 19(1), 115-139.