Are Value, Size and Momentum Premiums in CEE Emerging Markets Only Illusionary?
Finance a úvěr-Czech Journal of Economics and Finance, 65(1), 84-104
21 Pages Posted: 8 Jan 2014 Last revised: 2 Feb 2015
Date Written: February 2, 2015
Abstract
The answer to the question posed in the title is mostly yes. Using sorting and crosssection, we investigate the impact of illiquidity and transaction costs on value, size and momentum premiums in 11 CEE stock markets (Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia) for the years 2000–2013. We find very high value and size premiums and strong synergy effects between value and momentum strategies. However, the impact of illiquidity and transaction costs is almost lethal. After accounting for varying bid-ask spreads and liquidity, only the value premium survives. The size and momentum effects get obliterated.
Keywords: value, size, momentum, cross-section of stock returns, liquidity, transaction costs, CEE markets, emerging markets
JEL Classification: G11, G12, G14, G15
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