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Size and Value Efects in the Visegrad Countries

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  • Magdalena Morgese Borys
  • Petr Zemcik

Abstract

The paper has two main objectives. The first is to test for the presence of the size and bookto- market value effects in the Visegrad countries. Such effects have been found in the United States and many other developed stock markets. The Visegrad countries consist of the Czech Republic, Hungary, Poland, and Slovakia. We demonstrate that size and value do in fact explain the expected return/cost of capital in Eastern Europe. Based on this result, we proceed by constructing regional size and book-to-market portfolios for a combined Visegrad market. Returns on these port-folios serve as factors in addition to the market portfolio. The regional three-factor model performs as well as country-specific versions of the model. However, it can be estimated for a more current sample in Prague, Warsaw, Budapest, and Bratislava. Therefore it is a plausible model for the cost of capital in this region and we use it to calculate the cost of capital for the following industries: banks; capital goods; food, beverage and tobacco; materials; and utilities.

Suggested Citation

  • Magdalena Morgese Borys & Petr Zemcik, 2009. "Size and Value Efects in the Visegrad Countries," CERGE-EI Working Papers wp391, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
  • Handle: RePEc:cer:papers:wp391
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    References listed on IDEAS

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    Cited by:

    1. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    2. Yung-Chin Chiu & Ching-Wen Liang & Yanzhi Wang, 2012. "Corporate Financing Decisions on Research and Development Increases," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 88-109, January.
    3. Jan Hanousek & Evžen Kočenda, 2011. "Foreign News and Spillovers in Emerging European Stock Markets," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 170-188, February.
    4. Denice Bodeutsch & Philip Hans Franses, 2014. "Size and value effects in Suriname," Applied Financial Economics, Taylor & Francis Journals, vol. 24(10), pages 671-677, May.
    5. Adam ZAREMBA, 2015. "Low Risk Anomaly In The Cee Stock Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 81-102, September.
    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.

    More about this item

    Keywords

    CAPM; Fama and French factors; Regional Asset Pricing Model; size; book-to-market; Visegrad countries; emerging markets.;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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