Predicting equity returns in developed markets
Günaydın, Ali Doruk (2020) Predicting equity returns in developed markets. In: Škrinjarić, Tihana and Čižmešija, Mirjana and Christiansen, Bryan, (eds.) Recent Applications of Financial Risk Modelling and Portfolio Management. IGI Global, USA, pp. 68-90. ISBN 9781799850830 (Print) 9781799850847 (Online)
Official URL: http://dx.doi.org/10.4018/978-1-7998-5083-0.ch004
This chapter examines the relation between various firm-specific variables and the cross-section of equity returns in 26 developed countries. Univariate portfolio analyses using equal-weighted returns show that low beta, book-to-market equity, and momentum analysis are also priced in the cross-section of developed market returns, whereas short-term reversal and downside beta manifest themselves in the opposite direction. Univariate portfolio analysis based on value-weighted returns reveal that the predictive power of book-to-market equity and short-term reversal is driven by small stocks. Multivariate firm-level cross-sectional regression analysis document that momentum, short-term reversal, illiquidity, idiosyncratic volatility, hybrid tail risk, lower partial moment are related to expected stock returns. Overall, the most robust cross-sectional predictor in developed market is found to be return momentum.
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