Asset growth, style investing, and momentum

Pin Huang Chou, Kuan Cheng Ko, Nien Tzu Yang

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

We establish a significant and robust connection between asset growth (AG) and style investing by showing that past style returns constructed based on AG and size jointly predict future stock returns significantly. Motivated by this notion, we propose a style momentum strategy based on AG and size and find that it dominates price momentum and size-BM style momentum in generating momentum profits. We examine two explanations for this predictability, including risk exposure to common risk factors and the limited-attention theory. Empirical evidence shows that the AG-size style momentum profit is induced because investors neglect the AG-size style performance, consistent with the limited-attention explanation, but not risk exposure to the investment factor. Further, we show that the profit of the AG-size style momentum is robust to different time periods partitioned by several time-series predictors.

Original languageEnglish
Pages (from-to)108-124
Number of pages17
JournalJournal of Banking and Finance
Volume98
DOIs
StatePublished - Jan 2019

Keywords

  • Asset growth
  • Limited attention
  • Style investing
  • Style momentum

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