A closer look at the size and value premium in emerging markets

evidence from the Kuala Lumpur stock exchange

Michael E. Drew*, Madhu Veeraraghavan

*Corresponding author for this work

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

In this study of asset pricing in emerging markets, two questions are asked. First, Is there a size and value premium in markets outside the USA? Second, Can the multifactor model of Fama and French (1996) capture the cross-section of average stock returns for the Malaysian setting? The answers from this study suggest that size and value premium exist in markets outside the USA. We find that the two mimic portfolios, 'small minus big' (SMB) and 'high minus low' (HML), generate a return of 17.70% and 17.69% per annum, respectively, while the market generates a return of 1.92% per annum. Our findings suggest that the multifactor model of Fama and French (1996) is a parsimonious representation of the risk factors for Malaysia, explaining returns in an economically meaningful manner. Our findings also reject the claim that the multifactor model results can be explained by the turn-of-the-year effect.

Original languageEnglish
Pages (from-to)337-352
Number of pages16
JournalAsian Economic Journal
Volume16
Issue number4
Publication statusPublished - Dec 2002

Keywords

  • Asset pricing
  • Multifactor models
  • Seasonality effect
  • Size premium
  • Value premium

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