IDEAS home Printed from https://ideas.repec.org/a/eee/ememar/v16y2013icp46-65.html
   My bibliography  Save this article

Size, value, and momentum in emerging market stock returns

Author

Listed:
  • Cakici, Nusret
  • Fabozzi, Frank J.
  • Tan, Sinan

Abstract

In this paper, we examine value and momentum effects in 18 emerging stock markets. Using stock level data from January 1990 to December 2011, we find strong evidence for the value effect in all emerging markets and the momentum effect for all but Eastern Europe. We investigate size patterns in value and momentum. After forming portfolios sorted on size and book-to-market ratio, as well as size and lagged momentum, we use three well-known factor models to explain the returns for these portfolios based on factors constructed using local, U.S., and aggregate global developed stock markets data. Local factors perform much better, suggesting emerging market segmentation.

Suggested Citation

  • Cakici, Nusret & Fabozzi, Frank J. & Tan, Sinan, 2013. "Size, value, and momentum in emerging market stock returns," Emerging Markets Review, Elsevier, vol. 16(C), pages 46-65.
    • Handle: RePEc:eee:ememar:v:16:y:2013:i:c:p:46-65
    DOI: 10.1016/j.ememar.2013.03.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1566014113000198
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ememar.2013.03.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kearney, Colm, 2012. "Emerging markets research: Trends, issues and future directions," Emerging Markets Review, Elsevier, vol. 13(2), pages 159-183.
    2. Eugene F. Fama & Kenneth R. French, 1998. "Value versus Growth: The International Evidence," Journal of Finance, American Finance Association, vol. 53(6), pages 1975-1999, December.
    3. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
    4. Loughran, Tim, 1997. "Book-to-Market across Firm Size, Exchange, and Seasonality: Is There an Effect?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(3), pages 249-268, September.
    5. Harvey, Campbell R, 1995. "Predictable Risk and Returns in Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 8(3), pages 773-816.
    6. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2007. "Liquidity and Expected Returns: Lessons from Emerging Markets," The Review of Financial Studies, Society for Financial Studies, vol. 20(6), pages 1783-1831, November.
    7. Bekaert, Geert & Harvey, Campbell R. & Lumsdaine, Robin L., 2002. "Dating the integration of world equity markets," Journal of Financial Economics, Elsevier, vol. 65(2), pages 203-247, August.
    8. Lesmond, David A., 2005. "Liquidity of emerging markets," Journal of Financial Economics, Elsevier, vol. 77(2), pages 411-452, August.
    9. Bekaert, Geert & Harvey, Campbell R, 1995. "Time-Varying World Market Integration," Journal of Finance, American Finance Association, vol. 50(2), pages 403-444, June.
    10. Dumas, Bernard & Solnik, Bruno, 1995. "The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-479, June.
    11. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    12. Lewellen, Jonathan & Nagel, Stefan & Shanken, Jay, 2010. "A skeptical appraisal of asset pricing tests," Journal of Financial Economics, Elsevier, vol. 96(2), pages 175-194, May.
    13. Bekaert, Geert & Harvey, Campbell R., 1997. "Emerging equity market volatility," Journal of Financial Economics, Elsevier, vol. 43(1), pages 29-77, January.
    14. Bekaert, Geert & Harvey, Campbell R., 2002. "Research in emerging markets finance: looking to the future," Emerging Markets Review, Elsevier, vol. 3(4), pages 429-448, December.
    15. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    16. John M. Griffin, 2002. "Are the Fama and French Factors Global or Country Specific?," The Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 783-803.
    17. Bekaert, Geert, 1995. "Market Integration and Investment Barriers in Emerging Equity Markets," The World Bank Economic Review, World Bank, vol. 9(1), pages 75-107, January.
    18. John M. Griffin & Xiuqing Ji & J. Spencer Martin, 2003. "Momentum Investing and Business Cycle Risk: Evidence from Pole to Pole," Journal of Finance, American Finance Association, vol. 58(6), pages 2515-2547, December.
    19. Kothari, S P & Shanken, Jay & Sloan, Richard G, 1995. "Another Look at the Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 50(1), pages 185-224, March.
    20. K. Geert Rouwenhorst, 1999. "Local Return Factors and Turnover in Emerging Stock Markets," Journal of Finance, American Finance Association, vol. 54(4), pages 1439-1464, August.
    21. Bekaert, Geert & Harvey, Campbell R., 2003. "Emerging markets finance," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 3-56, February.
    22. Andy C.W. Chui & Sheridan Titman & K.C. John Wei, 2010. "Individualism and Momentum around the World," Journal of Finance, American Finance Association, vol. 65(1), pages 361-392, February.
    23. Geert Bekaert & Campbell R. Harvey & Christian Lundblad & Stephan Siegel, 2007. "Global Growth Opportunities and Market Integration," Journal of Finance, American Finance Association, vol. 62(3), pages 1081-1137, June.
    24. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    25. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    26. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    27. Gibbons, Michael R & Ross, Stephen A & Shanken, Jay, 1989. "A Test of the Efficiency of a Given Portfolio," Econometrica, Econometric Society, vol. 57(5), pages 1121-1152, September.
    28. Chambet, Anthony & Gibson, Rajna, 2008. "Financial integration, economic instability and trade structure in emerging markets," Journal of International Money and Finance, Elsevier, vol. 27(4), pages 654-675, June.
    29. Zhang, Xiaoyan, 2006. "Specification tests of international asset pricing models," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 275-307, March.
    30. Zhou, Guofu, 1994. "Analytical GMM Tests: Asset Pricing with Time-Varying Risk Premiums," The Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 687-709.
    31. Fama, Eugene F & French, Kenneth R, 1996. "Multifactor Explanations of Asset Pricing Anomalies," Journal of Finance, American Finance Association, vol. 51(1), pages 55-84, March.
    32. Carrieri, Francesca & Errunza, Vihang & Hogan, Ked, 2007. "Characterizing World Market Integration through Time," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 915-940, December.
    33. K. Geert Rouwenhorst, 1998. "International Momentum Strategies," Journal of Finance, American Finance Association, vol. 53(1), pages 267-284, February.
    34. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fama, Eugene F. & French, Kenneth R., 2012. "Size, value, and momentum in international stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 457-472.
    2. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, December.
    3. van der Hart, Jaap & de Zwart, Gerben & van Dijk, Dick, 2005. "The success of stock selection strategies in emerging markets: Is it risk or behavioral bias?," Emerging Markets Review, Elsevier, vol. 6(3), pages 238-262, September.
    4. Boamah, Nicholas Addai & Watts, Edward & Loudon, Geoffrey, 2017. "Regionally integrated asset pricing on the African stock markets: Evidence from the Fama French and Carhart models," Journal of Economics and Business, Elsevier, vol. 92(C), pages 29-44.
    5. Antonina Waszczuk, 2013. "Do local or global risk factors explain the size, value and momentum trading pay-offs on the Warsaw Stock Exchange?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(19), pages 1497-1508, October.
    6. Waszczuk, Antonina, 2013. "A risk-based explanation of return patterns—Evidence from the Polish stock market," Emerging Markets Review, Elsevier, vol. 15(C), pages 186-210.
    7. Cakici, Nusret & Tan, Sinan, 2014. "Size, value, and momentum in developed country equity returns: Macroeconomic and liquidity exposures," Journal of International Money and Finance, Elsevier, vol. 44(C), pages 179-209.
    8. Zaremba, Adam & Cakici, Nusret & Bianchi, Robert J. & Long, Huaigang, 2023. "Interest rate changes and the cross-section of global equity returns," Journal of Economic Dynamics and Control, Elsevier, vol. 147(C).
    9. Cakici, Nusret & Tang, Yi & Yan, An, 2016. "Do the size, value, and momentum factors drive stock returns in emerging markets?," Journal of International Money and Finance, Elsevier, vol. 69(C), pages 179-204.
    10. de Groot, Wilma & Pang, Juan & Swinkels, Laurens, 2012. "The cross-section of stock returns in frontier emerging markets," Journal of Empirical Finance, Elsevier, vol. 19(5), pages 796-818.
    11. van der Hart, Jaap & Slagter, Erica & van Dijk, Dick, 2003. "Stock selection strategies in emerging markets," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 105-132, February.
    12. Leite, André Luis & Klotzle, Marcelo Cabus & Pinto, Antonio Carlos Figueiredo & da Silva, Aldo Ferreira, 2018. "Size, value, profitability, and investment: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 36(C), pages 45-59.
    13. Huynh, Thanh D., 2017. "Conditional asset pricing in international equity markets," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 168-189.
    14. Zaremba Adam & Konieczka Przemysław, 2017. "Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 53(3), pages 26-47, September.
    15. Artmann, Sabine & Finter, Philipp & Kempf, Alexander, 2010. "Determinants of expected stock returns: Large sample evidence from the German market," CFR Working Papers 10-01, University of Cologne, Centre for Financial Research (CFR).
    16. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    17. Wagner, Alexander F. & Schrimpf, Paul & Petzev, Ivan, 2015. "Has the Pricing of Stocks Become More Global?," CEPR Discussion Papers 10966, C.E.P.R. Discussion Papers.
    18. repec:fau:fauart:v:65:y:2015:i:1:p:84-104 is not listed on IDEAS
    19. Christian Walkshäusl & Sebastian Lobe, 2014. "The Alternative Three†Factor Model: An Alternative beyond US Markets?," European Financial Management, European Financial Management Association, vol. 20(1), pages 33-70, January.
    20. Stereńczak, Szymon & Zaremba, Adam & Umar, Zaghum, 2020. "Is there an illiquidity premium in frontier markets?," Emerging Markets Review, Elsevier, vol. 42(C).
    21. Chaieb, Ines & Langlois, Hugues & Scaillet, Olivier, 2021. "Factors and risk premia in individual international stock returns," Journal of Financial Economics, Elsevier, vol. 141(2), pages 669-692.

    More about this item

    Keywords

    Emerging equity markets; Value effect; Momentum effect; Fama–French three-factor model; Carhart four-factor model;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:16:y:2013:i:c:p:46-65. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620356 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.