Combining Stock Momentum with Firm Asset Growth

Summary

This document describes a U.S. equity long-short strategy that first selects firms with the highest annual growth in total assets, then ranks those stocks by momentum. Asset growth uses the change from year t-2 to t-1, with July as the cutoff. Each month, the selected high-growth group is divided by past 11-month returns, skipping the most recent month; the strategy buys the strongest quintile and shorts the weakest. It uses equal weights, monthly rebalancing, and excludes January from holding periods. The smallest stocks, defined by the bottom NYSE market-capitalization percentile, are removed.

The cited research reports that momentum profits are especially strong among firms with high past asset growth and remain significant after controls for several firm characteristics. It also reports positive strategy returns during NBER recession months, suggesting possible diversification value during equity downturns. The document says the relationship has no clear explanation in existing literature. It provides no specific transaction-cost analysis or performance figures for the described implementation, so the reported findings should not be treated as a guarantee of live results.

Key ideas

• The strategy conditions stock momentum exposure on firms’ past growth in total assets.
• It selects the highest asset-growth decile and ranks its stocks using 11-month returns while skipping the latest month.
• The portfolio goes long the strongest momentum quintile and short the weakest, with equal weights and monthly rebalancing.
• January is excluded, and stocks below the 20th NYSE market-capitalization percentile are filtered out.
• The cited study reports a robust interaction and positive returns in recession months, while leaving the mechanism unclear.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.