The Profitability Effect: Insights from International Equity Markets

36 Pages Posted: 17 Sep 2018

See all articles by Te-Feng Chen

Te-Feng Chen

Hong Kong Polytechnic University

Lei Sun

Boston Consulting Group - Shanghai

K.C. John Wei

Hong Kong Polytechnic University

Feixue Xie

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance

Date Written: September 2018

Abstract

Using data from 33 international markets over the period 1990–2017, we reveal that the profitability effect exists in many countries other than the USA, but the size of this effect is sensitive to the measure of profitability and portfolio sorts. The profitability effect is significant in pooled developed and global markets, though less so in emerging markets. The evidence lends support to incorporating a profitability factor in regional/global factor models. Cross‐region and cross‐country analyses show mixed evidence for a positive relationship between profitability effects and market developments, though the overall findings lean toward supporting the prediction of the investment model.

Keywords: profitability effect, Profitability factor, cross‐sectional returns, investment CAPM, behavioral finance, international equity markets

Suggested Citation

Chen, Te-Feng and Sun, Lei and Wei, Kuo-Chiang (John) and Xie, Feixue, The Profitability Effect: Insights from International Equity Markets (September 2018). European Financial Management, Vol. 24, Issue 4, pp. 545-580, 2018, Available at SSRN: https://ssrn.com/abstract=3248614 or http://dx.doi.org/10.1111/eufm.12189

Te-Feng Chen (Contact Author)

Hong Kong Polytechnic University ( email )

Hung Hom, Kowloon
Hong Kong
+852 3400 3856 (Phone)

Lei Sun

Boston Consulting Group - Shanghai ( email )

Shanghai
China

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Feixue Xie

University of Texas at El Paso - College of Business Administration - Department of Economics and Finance ( email )

500 W. University Ave.
El Paso, TX 79968
United States
915-747-7788 (Phone)
915-747-6268 (Fax)

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