Common risk factors in returns in Asian emerging stock markets

Wai Cheong Shum, Gordon Y N TANG*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    28 Citations (Scopus)

    Abstract

    This paper examines the application of the Fama and French's (1993) three-factor model in three Asian emerging markets (Hong Kong, Singapore and Taiwan). The empirical evidence is consistent with the US findings that the model can explain most of the variations in average returns. However, we find that the main contributing factor is the contemporaneous market excess returns. The impact of the size effect and book-to-market (BE/ME) factor is limited and in some cases insignificant. When the three-factor model is modified by using lagged market excess returns instead in order to check for the predictability of the market factor, the explanatory power of the model drops substantially but both the risk factors for size and BE/ME are now able to contribute significantly in explaining the cross-sectional variations of stock returns. Their explanatory powers are strongest for small-size with high BE/ME portfolios. The robustness of our results is also checked for the separation of up and down markets periods and January effect.

    Original languageEnglish
    Pages (from-to)695-717
    Number of pages23
    JournalInternational Business Review
    Volume14
    Issue number6
    DOIs
    Publication statusPublished - Dec 2005

    Scopus Subject Areas

    • Business and International Management
    • Finance
    • Marketing

    User-Defined Keywords

    • BE/ME factor
    • Emerging markets
    • Size effect
    • Three-factor model

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