We test for firm-level asset investment effects in returns by examining the crosssectional relation between firm asset growth and subsequent stock returns. Asset growth rates are strong predictors of future abnormal returns. Asset growth retains its forecasting ability even on large capitalization stocks. When we compare asset growth rates with the previously documented determinants of the cross-section of returns (i.e., book-to-market ratios, firm capitalization, lagged returns, accruals, and other growth measures), we find that a firm's annual asset growth rate emerges as an economically and statistically significant predictor of the cross-section of U.S. stock returns.ONE OF THE PRIMARY FUNCTIONS OF CAPITAL MARKETS is the efficient pricing of real investment. As companies acquire and dispose of assets, economic efficiency demands that the market appropriately capitalizes such transactions. Yet, growing evidence identifies an important bias in the market's capitalization of corporate asset investment and disinvestment. The findings suggest that corporate events associated with asset expansion (i.e., acquisitions, public equity offerings, public debt offerings, and bank loan initiations) tend to be followed by periods of abnormally low returns, whereas events associated with asset contraction (i.e., spinoffs, share repurchases, debt prepayments, and dividend initiations) tend to be followed by periods of abnormally high returns.

No abstract

No abstract

No abstract

This paper tests models of mutual fund market timing that allow the manager's payo! function to depend on returns in excess of a benchmark, and distinguish timing based on publicly available information from timing based on "ner information. We simultaneously estimate parameters which describe the public information environment, the manager's risk aversion, and the precision of the fund's market-timing signal. Using a sample of more than 400 U.S. mutual funds for 1976}94, our "ndings suggest that mutual funds behave as highly risk averse, benchmark investors. Conditioning on public information improves the model speci"cation. After controlling for the public 0304-405X/99/$ -see front matter 1999 Elsevier Science S.A. All rights reserved. PII: S 0 3 0 4 -4 0 5 X ( 9 9 ) 0 0 0 0 6 -9 information, we "nd no evidence that funds have signi"cant market-timing ability.1999 Elsevier Science S.A. All rights reserved.JEL classi"cation: D82; G11; G12; G14; G23