Can Book-to-Market, Size, and Momentum Be Risk Factors That Predict Economic Growth?

Liew, Jim Kyung-Soo; Vassalou, Maria

doi:10.2139/ssrn.159293

Cited by 202 publications

(187 citation statements)

References 11 publications

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“…These results confirm and extend some previous findings of Liew and Vassalou (2000). Using time-series regression analysis and Fama and French risk factors (Fama and French (1993)), Liew and Vassalou (2000) test for output growth predictability in a group of 10 developed markets.…”

Section: Book-to-market Size and The Market Portfoliosupporting

confidence: 88%

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Predictability of Growth in Emerging Markets: Information in Financial Aggregates

Banegas

2016

internationalfinance

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This paper tests for predictability of output growth in a panel of 22 emerging market economies. We use pooled panel data methods that control for endogeneity and persistence in the predictor variables to test the predictive power of a large set of financial aggregates. Results show that stock returns, the term spread, default spreads and portfolio investment flows help predict output growth in emerging markets. We also find evidence that suggests that global aggregates such as the performance of commodity markets, a cross-sectional firm size factor, and returns on the market portfolio contain information about the future state of the economy.We benchmark our results against those from the U.S. and find that there are differences in the ability of financial markets in predicting economic growth. Our results generalize to emerging markets previous findings in the empirical macro-finance literature on the linkages between financial market performance and the real economy.JEL Classification: E44, G15

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Section: Book-to-market Size and The Market Portfoliosupporting

confidence: 88%

“…Liew and Vassalou (2000)). In particular, we test whether book-to-market, size, and the market portfolio contain information about the future state of the economy.…”

Section: Introductionmentioning

confidence: 99%

Predictability of Growth in Emerging Markets: Information in Financial Aggregates

Banegas

2016

internationalfinance

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“…The WMLt denotes the difference between returns on diversified winner and loser portfolios during the previous year. The model was developed by Carhart [1997] and was later tested by Jegadeesh [2000], Liew and Vassalou [2000], Kim [2003], L'Her, Masmoudi, andSuret [2004], Bello [2007], and Lam, Li, and So [2009].…”

Section: Research Methods and Asset Pricing Modelsmentioning

confidence: 99%

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

Zaremba

Konieczka

2017

International Journal of Management and Economics

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This paper tests the performance of the Capital Asset Pricing Model (CAPM) and the Fama-French three-factor and Carhart four-factor models on the Polish market. We use stock level data from April 2001 to January 2014 and find strong evidence for value and momentum effects, but only weak evidence for size premium. We formed portfolios double-sorted on size and book-to-market ratios, as well as on size and momentum, and we explain their returns with the above-mentioned asset pricing models. The CAPM is rejected and the three-factor and four-factor models perform well for the size and B/M sorted portfolios, but fail to explain returns on the size and momentum sorted portfolios. With the exception of the momentum factor, local Polish factors are not correlated with their European and global counterparts, suggesting market segmentation. Finally, the international value, size and momentum factors perform poorly in explaining crosssectional variation in stock returns on the Polish market.

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“…A variety of explanations are discussed in the literature, including arguments such as a sample-specific effect (Black 1993;MacKinlay 1995), the irrational behavior of investors (DeBondt and Thaler 1987;Lakonishok et al 1994), and arguments of risk due to aggregate factors (Fama and French 1993, 1996, 1998 or characteristics (Daniel and Titman 1997). In any case, researchers have found evidence in favor of the value effect across different sample periods (Davis 1994;Davis et al 2000) and in many different countries (Chan et al 1991;Capaul et al 1993;Fama and French 1998;Liew and Vassalou 2000). If, indeed, the book/market ratio contains information about future stock returns, it may seem reasonable to use it as a state variable.…”

Section: Book/market Ratio Consumption/wealth Ratio and Stock Markementioning

confidence: 99%

The Consumption/Wealth and Book/Market Ratios in a Dynamic Asset Pricing Contex

Nieto

Rodríguez

2006

SpanEconRev

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This paper addresses new insights into the predictability of financial returns. In particular, we analyze two aspects of the controversial forecasting literature. On the one hand, we demonstrate a positive and contemporaneous link between aggregate book/market and consumption/wealth ratios. On the other hand, we show that real estate and human capital, as the present value of all future salaries, are key components of the consumption/wealth ratio in Spain. Specifically, we find that the cointegrating residuals of consumption, asset holdings, real estate holdings, and our measure of human capital provide a better forecast of future returns than does the standard proxy of the consumption/wealth ratio. This result is important because it clarifies the importance of country-specific components of wealth for cases in which the consumption/wealth ratio is employed as an instrument in conditional asset pricing models.

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Can Book-to-Market, Size, and Momentum Be Risk Factors That Predict Economic Growth?

Cited by 202 publications

References 11 publications

Predictability of Growth in Emerging Markets: Information in Financial Aggregates

Predictability of Growth in Emerging Markets: Information in Financial Aggregates

Size, Value, and Momentum in Polish Equity Returns: Local or International Factors?

The Consumption/Wealth and Book/Market Ratios in a Dynamic Asset Pricing Contex

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