Download this Paper Open PDF in Browser

Anomalies and Stock Returns: Australian Evidence

30 Pages Posted: 23 Jul 2007 Last revised: 6 Nov 2008

Philip Gharghori

Monash University; Financial Research Network (FIRN)

Ronald Lee

Monash University

Madhu Veeraraghavan

T.A. PAI Management Institute, Finance Area

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2007

Abstract

Prior research has identified the existence of several cross-sectional patterns in equity returns, commonly referred to as effects. This paper empirically tests for the existence of a number of well known effects using data from the Australian equities market. Specifically, we investigate the size effect, book-to-market effect, earnings to price effect, cash flow to price effect, leverage effect and the liquidity effect. Fama and French (1996) note that patterns in average returns that cannot be explained by the traditional Capital Asset Pricing Model (CAPM) are considered anomalies. An additional aim of this paper is to investigate the capability of the CAPM and the Fama and French (1993) multifactor model (FFM) in explaining any observed anomalies. We document a size, book to market, earnings to price and cash flow to price effect but fail to find evidence of a leverage or liquidity effect. Although our results indicate that the FFM is superior to the CAPM in explaining cross-sectional variation in equity returns, we conclude that its performance is less than satisfactory in Australia.

Keywords: Anomalies, Fama-French model, Size effect, BE/ME effect

JEL Classification: G12, G14

Suggested Citation

Gharghori, Philip and Lee, Ronald and Veeraraghavan, Madhu, Anomalies and Stock Returns: Australian Evidence (September 1, 2007). Available at SSRN: https://ssrn.com/abstract=1002260 or http://dx.doi.org/10.2139/ssrn.1002260

Philip Gharghori

Monash University ( email )

Building 11E
Wellington Road
Clayton, Victoria 3800
Australia
61 3 9905 9247 (Phone)
61 3 9905 5475 (Fax)

HOME PAGE: http://www.monash.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Ronald Lee

Monash University ( email )

Wellington Road
Victoria, Roodepoort 3145
Australia

Madhu Veeraraghavan (Contact Author)

T.A. PAI Management Institute, Finance Area ( email )

Bangalore
Manipal, Karnataka 576104
India
+91-820-2701030 (Phone)

Paper statistics

Downloads
644
Rank
32,489
Abstract Views
2,090