Size and Book-to-Market Factors in Australia

32 Pages Posted: 6 Aug 2008

See all articles by Michael A O'Brien

Michael A O'Brien

Schroder Investment Management Limited; University of Queensland - Business School

Tim Brailsford

Bond University

Clive Gaunt

University of Queensland - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 5, 2008

Abstract

Prior research in the Australian equity market has failed to fully document the well-known influences of size and book-to-market effects that have been evidenced in other markets. While much is known about the size effect in Australia, data limitations have curtailed attempts to analyse the book-to-market effect. So, the question remains as to whether the value premium exists in Australia or whether it has simply failed to be adequately explored. This study uses a new and specially constructed database that covers 98% of all Australian listed firms over a 25 year period and provides evidence of both a size and value premium in the Australian market. For the first time in Australia, in both time-series and cross-sectional tests, the constructed factors reveal a significantly positive priced premium. The incorporation of these factors in the Fama-French three-factor model reveal the model's superiority over the CAPM.

Keywords: Size effect, Book-to-market effect, CAPM, Asset pricing, Fama-French Three-Factor Model

JEL Classification: G110, G120, G140

Suggested Citation

O'Brien, Michael A and Brailsford, Timothy John and Gaunt, Clive, Size and Book-to-Market Factors in Australia (August 5, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1206542 or http://dx.doi.org/10.2139/ssrn.1206542

Michael A O'Brien (Contact Author)

Schroder Investment Management Limited ( email )

United States

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Timothy John Brailsford

Bond University ( email )

Gold Coast, QLD 4229
Australia

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

Clive Gaunt

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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