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Explaining Equity Anomalies in Frontier Markets: A Horserace of Factor Pricing Models

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  • Adam Zaremba
  • Alina Maydybura
  • Anna Czapkiewicz
  • Marina Arnaut

Abstract

We are the first to compare the explanatory power of the major empirical asset pricing models over equity anomalies in the frontier markets. We replicate over 160 stock market anomalies in 23 frontier countries for years 1996–2017 and evaluate their performance with the factor models. The Carhart’s four-factor model outperforms both the recent Fama and French five-factor model and the q-model by Hou, Xue, and Zhan. Its superiority is driven by the ability to explain the momentum-related anomalies. Inclusion of additional profitability and investment factors lead to no further major improvement in the performance. Nonetheless, none of the models is able to fully explain the abnormal returns on all of the anomaly portfolios.

Suggested Citation

  • Adam Zaremba & Alina Maydybura & Anna Czapkiewicz & Marina Arnaut, 2021. "Explaining Equity Anomalies in Frontier Markets: A Horserace of Factor Pricing Models," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(13), pages 3604-3633, October.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:13:p:3604-3633
    DOI: 10.1080/1540496X.2019.1612361
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    Cited by:

    1. Eleftherios Thalassinos & Naveed Khan & Shakeel Ahmed & Hassan Zada & Anjum Ihsan, 2023. "A Comparison of Competing Asset Pricing Models: Empirical Evidence from Pakistan," Risks, MDPI, vol. 11(4), pages 1-24, March.
    2. Cakici, Nusret & Zaremba, Adam & Bianchi, Robert J. & Pham, Nga, 2021. "False discoveries in the anomaly research: New insights from the Stock Exchange of Melbourne (1927–1987)," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).

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