The Australian Asset‐Pricing Debate
29 Pages Posted: 3 Jun 2016
Date Written: June 2016
Utilising a comprehensive data set for Australian firms, we examine a range of competing asset‐pricing models, including the four‐ and five‐factor models where the equity‐risk premium is augmented by size, value, momentum and liquidity premia, and find that none of the models tested appears to adequately explain the cross section of Australian returns. A model accounting for Australia's integration with the US equity market appears to be the best of the competing models we study. Our argument that a model recognising Australia's integration with the USA is supported when we apply the portfolio and factor construction methodology suggested by Brailsford et al. (2012a,b).
Keywords: Asset‐pricing models, Fama–French–Carhart model, International integration, Momentum, Liquidity
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