Predicting Equity Returns in Emerging Markets
41 Pages Posted: 4 Aug 2018 Last revised: 3 Jun 2019
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- and medium-term return continuations. 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 either disappear or switch signs in a multivariate setting. We conclude that the most robust cross-sectional effects for emerging market equities are short- and medium-term return momentum.
Keywords: Equity Risk, Tail Risk, Anomalies, Cross-Section of Equity Returns, Emerging Markets
JEL Classification: G10, G11, G12
Suggested Citation: Suggested Citation