The Asset Growth Effect Of The Chinese Stock Market

The capital asset pricing problem is the core issue of modern financial theory and practice research. Without a proper asset price, the rationality of the allocation of the whole society will be affected. In the field of investment research, there are many studies about factors that affecting stock returns. Recently many scholars found that Total Assets Growth Rate will affect stock returns in the future. We call it asset growth effect. In other words, the company with high total assets growth rate will have a low stock returns in the follow year.In this text, we summarize 7 index that be used in the prior research of other scholars. The 7 index are used to describe the increase of the assets or investment. By comparison with them the 7 index, we found that total assets growth rate is the best factor to explain the abnormal stock returns. We use 3 factors that size BM and AG to do multiple regression and found that total assets growth rate can explain a part of the abnormal stock returns.In the end of the text, we found the reason of the asset growth effect. So far there are 4 kinds of interpretations about the asset growth effect. They are respectively from the perspective of rational investment and behavioral finance. From the rational investment, the asset growth effect have no relation with future investment situation,but from the behavioral finance, future investment situation affect the asset growth effect.Through the test in China’s securities market, we found that the future investment situation have an effect on the asset growth effect. Our findings are consistent with the hypothesis based on the behavioral finance but less consistent with the rational investment.