The Asset Growth Anomaly and the Role of Limits to Arbitrage
Several studies have documented that companies that increase capital investments or grow their total assets subsequently earn substantially lower risk-adjusted returns. Some studies attribute this phenomenon to investors’ initial underreactions to firms’ overinvestments or overreactions to changes in firms’ fundamentals. This paper examines the role of the limits to arbitrage in the negative effect of capital investment or asset growth on subsequent stock returns. We hypothesize that if the negative effect is due to investors’ initial mis-reactions, the effect should be more pronounced when there are more severe limits to arbitrage. Our empirical evidence supports the hypothesis. In addition, we find that the effect of the limits to arbitrage on the asset growth anomaly is not simply a manifestation of liquidity risk or trading costs consisted of bidask spreads and trading commissions.
Asset growth Capital investment Limits to arbitrage Cross-section of stock returns
Eric F.Y.C. Lam K.C. John Wei
Department of Finance Hong Kong University of Science and Technology Clear Water Bay, Kowloon, Hong Kong
国际会议
广州
英文
1-60
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）