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Asset growth, style investing, and momentum

Pin-Huang Chou, Kuan-Cheng Ko and Nien-Tzu Yang

Journal of Banking & Finance, 2019, vol. 98, issue C, 108-124

Abstract: We establish a significant and robust connection between asset growth (AG) and style investing by showing that past style returns constructed based on AG and size jointly predict future stock returns significantly. Motivated by this notion, we propose a style momentum strategy based on AG and size and find that it dominates price momentum and size-BM style momentum in generating momentum profits. We examine two explanations for this predictability, including risk exposure to common risk factors and the limited-attention theory. Empirical evidence shows that the AG-size style momentum profit is induced because investors neglect the AG-size style performance, consistent with the limited-attention explanation, but not risk exposure to the investment factor. Further, we show that the profit of the AG-size style momentum is robust to different time periods partitioned by several time-series predictors.

Keywords: Asset growth; Style investing; Style momentum; Limited attention (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2019
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