A comparison of the efficacy of liquidity, momentum, size and book-to-market value factors in equity pricing on a heterogeneous sample: evidence from Asia
A comparison of the efficacy of liquidity, momentum, size and book-to-market value factors in equity pricing on a heterogeneous sample: evidence from Asia
This paper compares the size and
book-to-market value factors of Fama and French (1993) alongside Momentum of
Jagadeesh and Titman (1993) with two Liu (2006)
liquidity factors formed from 1 year rebalancing and 1 month rebalancing
respectively. A heterogeneous and comprehensive sample of the top blue chip
stocks of all national Asian equity markets with further differentiation
undertaken between sub samples formed for Japan only and Asia excluding Japan
for period January 2000 to August 2014. Our empirical results suggest that
multifactor time invariant pricing models based on augmented capital asset
pricing model (CAPM) framework are ineffective in explaining the cross section
of stock returns in the presence of significant inter and intra-market segmentation.
However an alternative model specification based on a time varying parameter
specification and using same sets of factors yields significant enhancements in
explaining cross section of stock returns across universe. We find that
momentum factor largely lacks significance while a time varying two factor
model, based on CAPM plus liquidity factor, is optimal. The liquidity factor
being that of Liu (2006) and annually rebalanced. Our findings are important
for investment managers seeking appropriate factors and modelling techniques to
hedge against risks as well as firm's financial managers seeking to reduce
costs of equity capital.
Asia, CAPM, Emerging Financial Markets, G11, G12, G15, Liquidity, O55
253-330
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
1 November 2016
Hearn, Bruce
45dccea3-9631-4e5e-914c-385896674dc2
Hearn, Bruce
(2016)
A comparison of the efficacy of liquidity, momentum, size and book-to-market value factors in equity pricing on a heterogeneous sample: evidence from Asia.
Financial Markets, Institutions and Instruments, 25 (4), .
(doi:10.1111/fmii.12078).
Abstract
This paper compares the size and
book-to-market value factors of Fama and French (1993) alongside Momentum of
Jagadeesh and Titman (1993) with two Liu (2006)
liquidity factors formed from 1 year rebalancing and 1 month rebalancing
respectively. A heterogeneous and comprehensive sample of the top blue chip
stocks of all national Asian equity markets with further differentiation
undertaken between sub samples formed for Japan only and Asia excluding Japan
for period January 2000 to August 2014. Our empirical results suggest that
multifactor time invariant pricing models based on augmented capital asset
pricing model (CAPM) framework are ineffective in explaining the cross section
of stock returns in the presence of significant inter and intra-market segmentation.
However an alternative model specification based on a time varying parameter
specification and using same sets of factors yields significant enhancements in
explaining cross section of stock returns across universe. We find that
momentum factor largely lacks significance while a time varying two factor
model, based on CAPM plus liquidity factor, is optimal. The liquidity factor
being that of Liu (2006) and annually rebalanced. Our findings are important
for investment managers seeking appropriate factors and modelling techniques to
hedge against risks as well as firm's financial managers seeking to reduce
costs of equity capital.
Text
ASIA Liq-CAPM USD BH
- Accepted Manuscript
More information
Accepted/In Press date: 1 October 2016
e-pub ahead of print date: 12 October 2016
Published date: 1 November 2016
Keywords:
Asia, CAPM, Emerging Financial Markets, G11, G12, G15, Liquidity, O55
Identifiers
Local EPrints ID: 423181
URI: http://eprints.soton.ac.uk/id/eprint/423181
ISSN: 0963-8008
PURE UUID: b1fd5c50-f1a8-415a-bdc7-480b18ae355e
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Date deposited: 19 Sep 2018 16:30
Last modified: 16 Mar 2024 04:37
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