The Asset Growth Anomaly In The Chinese Stock Market

This paper focuses on the questions of whether asset growth anomaly exists in China's A-share market,and whether this asset growth anomaly derives from the mispricing of risk premiums in the market.We find that there is a lagged asset growth anomaly from 1997 to 2016 in China's A-share market.From 2008 to 2016,we cannot capture the anomaly using any of the existing models,including the Fama-French five factor model.Therefore,we assert that the stable asset growth anomaly observed from 2008 to 2016 relates to the non-tradable shares reform for listed companies.We also conduct deeper research on the anomaly generation.Two hypotheses are used to explain the asset growth anomaly in the Chinese stock market.One hypothesis suggests the asset growth anomaly is mispricing caused by the investors' reaction to the firm's past performance and the failure of the arbitrage mechanism.The other hypothesis suggests that the asset growth anomaly is the risk caused by rational risk factors.To test the rational factor hypothesis,we construct the asset growth factor and test whether the asset growth factor captures the excess returns not explained by the Fama-French three-factor model.We find that factor loading has no incremental predictive power after controlling for variations in the asset growth rates.Thus,the rational factor hypothesis is rejected.We also test the mispricing hypothesis by associating asset growth with earnings announcement day returns and idiosyncratic volatility.The results support the explanation that the asset growth anomaly in the Chinese stock market is a result of mispricing.