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The Role of Investability Restrictions on Size, Value, and Momentum in International Stock Returns

Posted: 22 Apr 2012 Last revised: 15 Jul 2015

George Andrew Karolyi

Cornell University - Johnson Graduate School of Management

Ying Wu

Stevens Institute of Technology - School of Business

Date Written: April 20, 2012

Abstract

Using monthly returns for over 37,000 stocks from 46 developed and emerging market countries over a two-decade period, we test whether empirical asset pricing models capture the size, value, and momentum patterns in international stock returns. We propose and test a multi-factor model that includes factor portfolios based on firm characteristics and that builds separate factors comprised of globally-accessible stocks, which we call “global factors,” and of locally-accessible stocks, which we call “local factors.” Our new “hybrid” multi-factor model with both global and local factors not only captures strong common variation in global stock returns, but also achieves low pricing errors and rejection rates using conventional testing procedures for a variety of regional and global test asset portfolios formed on size, value, and momentum.

Keywords: International asset pricing, investment restrictions, cross-listed stocks

JEL Classification: F30, G11, G15

Suggested Citation

Karolyi, George Andrew and Wu, Ying, The Role of Investability Restrictions on Size, Value, and Momentum in International Stock Returns (April 20, 2012). Johnson School Research Paper Series No. 12-2012. Available at SSRN: https://ssrn.com/abstract=2043156 or http://dx.doi.org/10.2139/ssrn.2043156

George Andrew Karolyi (Contact Author)

Cornell University - Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Ying Wu

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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