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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 recommends 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.
Asra Jawed Shaikh, Muhammad Kashif. (2017) Asset Growth Anomaly and Stock Returns: An Evidence of Karachi Stock Exchange (KSE) Market, Journal of Independent Studies and Research-Management, Social Sciences and Economics, Volume-15, Issue-2.
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