Predicting Equity Returns in Emerging Markets
46 Pages Posted: 4 Aug 2018 Last revised: 5 Feb 2020
Date Written: July 31, 2018
This study investigates the relation between a large set of firm-specific attributes and future equity returns for a sample of stocks from 23 emerging markets. Country-specific univariate analyses based on equal-weighted portfolio returns reveal strong evidence of short-term momentum (rather than reversal) and medium-term return momentum patterns. We also find some evidence that market beta, book-to-market ratio and downside risk metrics can 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, out of a comprehensive set of variables studied in developed markets, the most robust cross-sectional effects for emerging market equities are short- and medium-term return momentum.
Keywords: equity risk, tail risk, momentum, anomalies, cross-section of equity returns, emerging markets
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation