Asset growth and the cross-section of stock returns: evidence from Greek listed firms

Purpose: The purpose of this paper is to examine whether firm-level asset investment effects in returns found for US firms occur within the Greek stock market. Design/methodology/approach: The paper utilizes portfolio-level tests and cross-sectional regressions. Findings: The authors find that growth in total assets is strongly negatively related to future stock returns of Greek firms. In fact, the relation remains statistically significant, even when the authors control for other strong predictors of future returns (i.e. market capitalization and book-to-market ratio). Furthermore, the authors find that a hedge trading strategy on asset growth rate consisting of a long (short) position in firms with low (high) balance sheet growth generates positive returns, confirming that investment growth has significant predictive power for future returns of Greek listed firms. Originality/value: The paper adds to the literature on the generalization of asset pricing regularities attributable to accounting figures in an emerging market.