Predicting Equity Returns in Emerging Markets
50 Pages Posted: 4 Aug 2018 Last revised: 1 Sep 2020
Date Written: July 31, 2018
This study investigates the relation between firm-specific attributes and future equity returns in 23 emerging markets. Equal-weighted portfolio returns reveal strong evidence of short-term momentum (rather than reversal) and medium-term return momentum. We also find evidence that market beta, book-to-market ratio and downside risk metrics predict equity returns, however, these relations get weaker once value-weighting is used. In univariate regressions, smaller firms with higher idiosyncratic volatility, lottery-like characteristics and stock-specific downside risk are associated with higher future returns, however, these relations disappear in a multivariate setting. We conclude that the most robust cross-sectional effects are short- and medium-term return momentum.
Keywords: tail risk, momentum, anomalies, cross-section of equity returns, emerging markets
JEL Classification: G10, G11, G12
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