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School of Business | Department of Finance | Finance | 2016
Thesis number: 14602
The asset growth of firms and stock price momentum
Author: Long, Emilia
Title: The asset growth of firms and stock price momentum
Year: 2016  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; yritykset; companies; varallisuus; wealth; muutos; change; strategia; strategy; osakemarkkinat; stock markets
Pages: 72
Full text:
» hse_ethesis_14602.pdf pdf  size:2 MB (1121244)
Key terms: asset growth; momentum strategy; market anomaly

The purpose of this thesis is to see whether large asset growth expansions or contractions are related to momentum effect. In momentum strategy, past winner stocks are bought and past loser stocks are sold in order to profit from momentum anomaly.


Data is retrieved from the Thomson- Reuter Datastream/WorldScope database. The sample covers all firms that have existed during July 1985 and June 2015 from particular stock markets of Austria, Belgium, Finland, France, Germany, Italy, the Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom as well as Canada and Japan.

Two-tailed t-tests are conducted in Stata to measure the return differences of different stock portfolios formed from this data. In the first test, stock portfolios are sorted into three groups (low, middle, high) based on prior asset growth for countries in order to see if the returns are lower in high asset growth groups. In the second test, stock portfolios are sorted into three groups (low, middle, high) based on past 11-month returns for countries in order to see whether the past winners (high group) outperform the past losers (low group). In the third test, stocks are grouped into asset growth groups (low, middle, high) in order to see is there momentum effect present in the low and high asset growth groups. Finally, OLS regressions are conducted for each country with the aggregate momentum profits as the dependent variable and lagged aggregate asset growth rate as the explanatory variable.


The results show that there is an asset growth effect present in most of the countries of the sample but the momentum effect was not significantly present. The key finding is that, there are significant momentum profits in the highest asset growth rate group and often in the low asset growth rate groups as well. This is in line with Nyberg and Pöyry (2014), who find that the momentum effect is strong when there are large asset expansions and contractions. Large balance sheet asset growth rate changes do seem to be related to the momentum effect.
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