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A Factor Model for Country-Level Equity Returns

In: Eurasian Economic Perspectives

Author

Listed:
  • Adam Zaremba

    (University of Dubai
    Poznan University of Economics and Business)

Abstract

We offer a new three-factor asset-pricing model for country equity returns. The model accommodates a broad set of country-level cross-sectional anomalies better than the popular CAPM, three-factor model, and four-factor model. Furthermore, it fully explains the performance of other models’ factors, while the standard models are not able to explain the alphas of their factors. The new model relies on the country-level portfolios formed based on the EBITDA-to-EV ratio and on skewness-enhanced momentum. These factor portfolios provide reliable and robust sources of return, and their performance is consistent with the behavioral finance mispricing interpretation. This study is based on the accounting and price data from 78 country equity markets in 1995–2015.

Suggested Citation

  • Adam Zaremba, 2020. "A Factor Model for Country-Level Equity Returns," Eurasian Studies in Business and Economics, in: Mehmet Huseyin Bilgin & Hakan Danis & Gökhan Karabulut & Giray Gözgor (ed.), Eurasian Economic Perspectives, pages 161-191, Springer.
    • Handle: RePEc:spr:eurchp:978-3-030-35040-6_11
    DOI: 10.1007/978-3-030-35040-6_11
    as

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