The asset growth effect in a mean-variance analysis

Xiaotuo Qiao, Haifeng Guo and Jun Li

Applied Economics, 2022, vol. 54, issue 37, 4259-4273

Abstract: We study the asset growth effect in a mean-variance analysis. In the asset growth deciles, we uncover a U-shaped relation between asset growth and return volatility and hump-shaped relation between asset growth and Sharpe ratio, with the bottom of the volatility and peak of the Sharpe ratio both around stocks with zero asset growths. The pattern is robust to finer portfolio grids and portfolios sorted by the growth rates of asset components, including current and long-term asset, book equity, and debt; it also exists among stocks with different sizes, idiosyncratic volatilities, and market betas. The two-factor structure of the asset growth portfolios are shown to be crucial in understanding these patterns.

Date: 2022
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DOI: 10.1080/00036846.2022.2030041

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