ISSN: 1998 - 4162

JISR MSSE Journal Contents

Volume 15, Number 2, July 2017


Asset Growth Anomaly and Stock Returns: An Evidence of Karachi Stock Exchange (KSE) Market
Asra Jawed Shaikh - SZABIST, Karachi, Pakistan
Muhammad Kashif - SZABIST, Karachi, Pakistan


Abstract
In efficient market, firms who make more investments are considered to have high earnings and better prospects which instantly incorporated into its share prices. However, range of studies demonstrated sturdy evidence of asset growth effect i.e.“Higher returns have been enjoyed by low growth firms and vice versa” and claims this factor explains returns better than market beta of various asset pricing models (Cooper, Gulen & Schill, 2008; Li & Sullivan, 2014 and Wen, 2014). Hence, this study is an attempt to explore the profitability of asset growth anomaly on Karachi Stock Exchange (KSE) by constructing deciles portfolios from Jan 2001-Dec 2015. The results support the existence of asset growth anomaly in KSE market. The use of Generalized Methods of Moments (GMM) proved that Capital Asset Pricing Model (CAPM), Fama-French (three and five factor) models are mis-specified models in case of KSE because they all botched to elucidate the cross-sectional variation in portfolios returns based on firm’s asset growth. The results of current study are highly consistent with the Fama & French (1993, 2015). The empirical findings recommend investing in small growth firms is an appropriate sound strategy to generate abnormal higher returns as we claim stocks can be predicted on the basis of asset growth anomaly and through developing this investment strategy i.e. by taking the long position in low growth stocks and short position in high growth stocks, investors may generate positively higher returns in Pakistan.

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