This paper documents evidence of reversals in the long-term returns of international equity markets. We use recent short-term performance to better select contrarian securities that appear ready to reverse. Our late-stage contrarian strategy consistently provides stronger evidence of long-term return reversal than does the traditional pure contrarian strategy when applied to developed and emerging market indices. Despite an absence of cross-sectional contrarian profits for developed markets in our post-1989 subsample, longitudinal analysis provides strong evidence of reversals during this period. Overall, our results suggest that the reversal of long-term returns may be stronger and more pervasive than is generally understood.

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Dempsey (2013) argues that, contrary to the generally held view, the capital asset pricing model (CAPM) has never merited an empirical justification. Additionally, he considers that if investors care about their exposure to the markets (requiring an equity risk premium) but are apparently indifferent to how that exposure is encapsulated in any stock (the measure of which is beta), then it is difficult to see how investors can be sensitive to the risk factors in the Fama and French (1996) threefactor model as actual 'risk' factors. Consequently, he doubts the value of much of the asset pricing literature aimed at refining the models.The CAPM faces three main empirical challenges: (a) The beta anomaly (portfolios of low beta stocks tend to have higher average returns than the CAPM predicts while portfolios of high beta stocks tend to have lower average returns than the CAPM predicts); (b) the value anomaly (firms with high book-to-market equity [BE/ME] ratios tend to have higher average returns than do firms with low bookto-market ratios); and (c) the momentum anomaly (stocks with relatively large recent six-month to 12-month returns tend to have higher average returns over the following 12 months than do stocks with relatively low recent six-month to 12-month returns). Recent evidence of the beta and value anomalies can be found in Fama and French (2006) while Jegadeesh and Titman (2001) update the U.S. evidence for the momentum anomaly.This paper contributes to the existing literature by showing: (a) that the CAPM fails empirically when applied to industries (previous studies looked mostly at the adequacy of the CAPM when applied to stocks); (b) that after 1993 the value and momentum anomalies appear to continue whereas the beta anomaly appears to have weakened; and (c) that the value and momentum anomalies, and the value of beta, can largely be ignored if the task is to estimate industry cost of equity. 1 DATA AND METHODOLOGYTo update the evidence about the beta, value and momentum anomalies, the returns of 48 U.S. industries are investigated. Data for the period

This paper offers an alternative method for estimating expected returns. The proposed reward beta approach performs well empirically and is based on asset pricing theory. The empirical section compares this approach with the capital asset pricing model (CAPM) and the Fama-French three-factor model. In out-of-sample testing, both the CAPM and the three-factor model are rejected. In contrast, the reward beta approach easily passes the same test. In robustness checks, the reward beta approach consistently outperforms both the CAPM and the three-factor model. Copyright (c) The Author Journal compilation (c) 2007 AFAANZ.

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