Overreaction to growth opportunities: An explanation of the asset growth anomaly

Charlie X. Cai, Peng Li and Qi Zhang

European Financial Management, 2019, vol. 25, issue 4, 747-776

Abstract: The negative relation between asset growth and subsequent stock returns is known as the asset growth anomaly. We propose that overreaction to growth opportunities is the source of the asset growth anomaly. This suggests that growth firms as opposed to mature firms, and firms with longer series of asset growth should experience a stronger asset growth anomaly. Our evidence supports these predictions.

Date: 2019
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