Open AccessAnalysis of Asset Growth Anomaly on Cross-Section Stock Returns: Evidence from Indonesia Stock Exchange
Author(s) -
Muhammad Iqbal,
Buddi Wibowo
Publication year - 2017
Publication title -
journal of economics, business and accountancy ventura
Language(s) - English
Resource type - Journals
eISSN - 2088-785X
pISSN - 2087-3735
DOI - 10.14414/jebav.v20i1.1036
Subject(s) - capital asset pricing model , stock (firearms) , economics , portfolio , financial economics , econometrics , anomaly (physics) , stock market , growth stock , stock exchange , monetary economics , restricted stock , finance , mechanical engineering , paleontology , physics , horse , engineering , biology , condensed matter physics
Assorted types of market anomalies occur when stock prices deviate from the prediction of classical asset pricing theories. This study aims to examine asset growth anomaly where stocks with high asset growth will be followed by low returns in the subsequent periods. This study, using Indonesia Stock Exchanges data, finds that an equally-weighted low-growth portfolio outperforms high-growth portfolio by average 0.75% per month (9% per annum), confirming existence of asset growth anomaly. The analysis is extended at individual stock-level using fixed-effect panel regression in which asset growth effect remains significant even with controlling other variables of stock return determinants. This study also explores further whether asset growth can be included as risk factor. Employing two-stage cross-section regression in Fama and Macbeth (1973), the result aligns with some prior studies that asset growth is not a new risk factor; instead the anomaly is driven by mispricing due to investors’ overreaction and psychological bias. This result imply that asset growth anomaly is general phenomenon that can be found at mostly all stock market but in Indonesia market asset growth anomaly rise from investors’ overreaction, instead of playing as a factor of risk.