The Cross-Section of Emerging Market Stock Returns

55 Pages Posted: 28 Aug 2018

See all articles by Matthias X. Hanauer

Matthias X. Hanauer

Technische Universität München (TUM); Robeco Quantitative Investments

Jochim Lauterbach

Technische Universität München (TUM)

Date Written: August 17, 2018

Abstract

Using monthly stock returns from 28 emerging market countries and a total sample period of 21 years, we investigate the predictive power of a broad set of factors. We document that the factor definitions of the Fama and French (2015) five-factor model are less robust compared to alternative factor definitions. In contrast, the anomalous returns associated with cash flow-to-price, gross profitability, composite equity issuance, and momentum are pervasive as they show up in equal- and value-weighted portfolio sorts as well as in cross-sectional regressions. In contrast to financial theory and in line with previous findings, we do not find a positive cross-sectional relationship between risk and return. Finally, return forecasts derived from the alternative factor definitions are superior in their out-of-sample predictive ability to the ones derived from the five-factor model.

Keywords: Emerging Markets, Market Anomalies, Value, Profitability, Investments, Momentum

JEL Classification: G12, G14, G15

Suggested Citation

Hanauer, Matthias Xaver and Lauterbach, Jochim, The Cross-Section of Emerging Market Stock Returns (August 17, 2018). Available at SSRN: https://ssrn.com/abstract=3233614 or http://dx.doi.org/10.2139/ssrn.3233614

Matthias Xaver Hanauer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany

HOME PAGE: http://www.professors.wi.tum.de/fm/team/researcher/dr-matthias-hanauer-cfa/

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

HOME PAGE: http://www.robeco.com/en/insights/authors/matthias-hanauer.html

Jochim Lauterbach

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

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