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Size, value and momentum in international stock returns

Bhayo, Mujeeb-U-Rehman 2015. Size, value and momentum in international stock returns. PhD Thesis, Cardiff Univeristy.
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Abstract

This thesis extends the empirical asset pricing literature by testing whether alternative specifications of Fama and French’s (1993) three-factor and Carhart’s (1997) four-factor models capture size, value and momentum anomalies. Specifically, the alternative models tested include the modified and index-based models of Cremers et al. (2013) and decomposed models of Fama and French (2012). This thesis investigates international stock returns and whether asset pricing models are integrated across four countries, namely the US, UK, Japan, and Canada. Finally, the information content of the empirically motivated size, value and momentum factors is tested using Petkova’s (2006) ICAPM model. The models are tested using both time-series and cross-sectional regression approaches. The results show that the factors constructed using different approaches have quite different average returns. In general, there is no size premium in average stock returns in any country. There is a value premium only for Japan and Canada that increases with size, while there is a momentum premium everywhere except Japan, which declines with size. Both timeseries and cross-sectional results show that the alternative models significantly improve the pricing performance, and especially the index-based model successfully explains the size and B/M portfolio returns for the four countries. None of the models can explain the size and momentum portfolio returns except for Japan. Although the international index-based model receives some empirical support in a combined international sample, the US and Japan, generally, the international models fail badly, which indicates a lack of integration. When relating size, value and momentum factors with innovations to the state variables in an ICAPM specification, the results are discouraging and contradict Petkova’s (2006) results for the US. The size, value and momentum factors remain important factors in explaining the crosssectional returns for all countries, even in the presence of the state variable innovations

Item Type: Thesis (PhD)
Date Type: Publication
Status: Unpublished
Schools: Business (Including Economics)
Subjects: H Social Sciences > HG Finance
Funders: Sakur Institute Pakistan
Date of First Compliant Deposit: 26 April 2016
Last Modified: 08 Nov 2016 06:23
URI: http://orca-mwe.cf.ac.uk/id/eprint/89905

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