The use of asset growth in empirical asset pricing models

Michael Cooper, Huseyin Gulen, Mihai Ion

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We show that the performance of the new factor models of Hou et al. (2015) and Fama and French (2015) depends crucially on how their investment factor is constructed. Both models use growth in total assets to measure investment. Their ability to price the cross-section of returns decreases significantly when the investment factor is constructed using traditional investment measures, or measures that also account for investment in intangibles. In contrast, we find that factors based on growth in inventory and accounts receivable contain the bulk of the pricing information in the asset growth factor. We show evidence that the superior performance of the asset growth factor seems to be attributable to its ability to capture aggregate shocks to equity financing costs.

Original languageEnglish (US)
Article number103746
JournalJournal of Financial Economics
StatePublished - Jan 2024


  • Anomalies
  • Asset growth
  • Dividend discount model
  • Factor model
  • Investment
  • Overextrapolation
  • The q-factor model

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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