Explaining Equity Anomalies In Frontier Markets: A Horserace of Factor Pricing Models
Emerging Markets Finance and Trade, Forthcoming
51 Pages Posted: 28 May 2019
Date Written: April 23, 2019
We are the first to compare the explanatory power of the major empirical asset pricing models over equity anomalies in the frontier markets. We replicate over 160 stock market anomalies in 23 frontier countries for years 1996–2017, and evaluate their performance with the factor models. The Carhart’s (1997) four-factor model outperforms both the recent Fama and French (2015) five-factor model and the q-model by Hou, Xue, and Zhang (2015). Its superiority is driven by the ability to explain the momentum-related anomalies. Inclusion of additional profitability and investment factors lead to no further major improvement in the performance. Nonetheless, none of the models is able to fully explain the abnormal returns on all of the anomaly portfolios.
Keywords: equity anomalies, frontier stock markets, empirical asset pricing, factor models, the cross-section of returns
JEL Classification: G11, G12, G15
Suggested Citation: Suggested Citation