IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v53y2020ics1062940820300851.html
   My bibliography  Save this article

Anomalies in emerging markets: The case of Mexico

Author

Listed:
  • Diaz-Ruiz, Polux
  • Herrerias, Renata
  • Vasquez, Aurelio

Abstract

In this article we explore the relationship between 19 of the most common anomalies reported for the US market and the cross-section of Mexican stock returns. We find that 1-month stock returns in Mexico are robustly predicted only by 3 of the 19 anomalies: momentum, idiosyncratic volatility, and the lottery effect. Momentum has a positive relation with future 1-month returns, while idiosyncratic volatility and the lottery effect have a negative relation. For longer horizons of 3 and 6 months, only the 3 most important factors in the US market predict returns: size, book-to-market, and momentum.

Suggested Citation

  • Diaz-Ruiz, Polux & Herrerias, Renata & Vasquez, Aurelio, 2020. "Anomalies in emerging markets: The case of Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:ecofin:v:53:y:2020:i:c:s1062940820300851
    DOI: 10.1016/j.najef.2020.101188
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940820300851
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2020.101188?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W, 1994. "Contrarian Investment, Extrapolation, and Risk," Journal of Finance, American Finance Association, vol. 49(5), pages 1541-1578, December.
    2. Zaremba, Adam & Umutlu, Mehmet, 2018. "Size matters everywhere: Decomposing the small country and small industry premia," The North American Journal of Economics and Finance, Elsevier, vol. 43(C), pages 1-18.
    3. Ines Chaieb & Hugues Langlois & O. Scaillet, 2018. "Time-Varying Risk Premia in Large International Equity Markets," Swiss Finance Institute Research Paper Series 18-04, Swiss Finance Institute, revised Jun 2018.
    4. Novy-Marx, Robert, 2013. "The other side of value: The gross profitability premium," Journal of Financial Economics, Elsevier, vol. 108(1), pages 1-28.
    5. Basu, Sanjoy, 1983. "The relationship between earnings' yield, market value and return for NYSE common stocks : Further evidence," Journal of Financial Economics, Elsevier, vol. 12(1), pages 129-156, June.
    6. Kingsley Y. L. Fong & Craig W. Holden & Charles A. Trzcinka, 2017. "What Are the Best Liquidity Proxies for Global Research?," Review of Finance, European Finance Association, vol. 21(4), pages 1355-1401.
    7. Balakrishnan, Karthik & Bartov, Eli & Faurel, Lucile, 2010. "Post loss/profit announcement drift," Journal of Accounting and Economics, Elsevier, vol. 50(1), pages 20-41, May.
    8. Bali, Turan G. & Cakici, Nusret & Whitelaw, Robert F., 2011. "Maxing out: Stocks as lotteries and the cross-section of expected returns," Journal of Financial Economics, Elsevier, vol. 99(2), pages 427-446, February.
    9. Ang, Andrew & Hodrick, Robert J. & Xing, Yuhang & Zhang, Xiaoyan, 2009. "High idiosyncratic volatility and low returns: International and further U.S. evidence," Journal of Financial Economics, Elsevier, vol. 91(1), pages 1-23, January.
    10. Herrera, Martin J. & Lockwood, Larry J., 1994. "The size effect in the Mexican stock market," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 621-632, September.
    11. Bialkowski, Jedrzej & Gottschalk, Katrin & Wisniewski, Tomasz Piotr, 2008. "Stock market volatility around national elections," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1941-1953, September.
    12. Jegadeesh, Narasimhan, 1990. "Evidence of Predictable Behavior of Security Returns," Journal of Finance, American Finance Association, vol. 45(3), pages 881-898, July.
    13. Nicholas Barberis & Ming Huang, 2001. "Mental Accounting, Loss Aversion, and Individual Stock Returns," NBER Working Papers 8190, National Bureau of Economic Research, Inc.
    14. Kewei Hou & G. Andrew Karolyi & Bong-Chan Kho, 2011. "What Factors Drive Global Stock Returns?," The Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2527-2574.
    15. Michael J. Cooper & Huseyin Gulen & Michael J. Schill, 2008. "Asset Growth and the Cross‐Section of Stock Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1609-1651, August.
    16. Zaremba, Adam & Mikutowski, Mateusz & Karathanasopoulos, Andreas & Osman, Mohamed, 2019. "Picking winners to pick your winners: The momentum effect in commodity risk factors," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    17. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    18. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    19. Agrawal, Anup & Tandon, Kishore, 1994. "Anomalies or illusions? Evidence from stock markets in eighteen countries," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 83-106, February.
    20. Kent Daniel & Sheridan Titman, 2006. "Market Reactions to Tangible and Intangible Information," Journal of Finance, American Finance Association, vol. 61(4), pages 1605-1643, August.
    21. Chordia, Tarun & Subrahmanyam, Avanidhar & Tong, Qing, 2014. "Have capital market anomalies attenuated in the recent era of high liquidity and trading activity?," Journal of Accounting and Economics, Elsevier, vol. 58(1), pages 41-58.
    22. Robert Novy-Marx & Mihail Velikov, 2016. "A Taxonomy of Anomalies and Their Trading Costs," The Review of Financial Studies, Society for Financial Studies, vol. 29(1), pages 104-147.
    23. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    24. Dutt, Tanuj & Humphery-Jenner, Mark, 2013. "Stock return volatility, operating performance and stock returns: International evidence on drivers of the ‘low volatility’ anomaly," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 999-1017.
    25. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    26. Bruce N. Lehmann, 1990. "Fads, Martingales, and Market Efficiency," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(1), pages 1-28.
    27. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    28. Jeffrey Pontiff & Artemiza Woodgate, 2008. "Share Issuance and Cross‐sectional Returns," Journal of Finance, American Finance Association, vol. 63(2), pages 921-945, April.
    29. Nicholas Barberis & Ming Huang, 2001. "Mental Accounting, Loss Aversion, and Individual Stock Returns," Journal of Finance, American Finance Association, vol. 56(4), pages 1247-1292, August.
    30. Blitz, David & Pang, Juan & van Vliet, Pim, 2013. "The volatility effect in emerging markets," Emerging Markets Review, Elsevier, vol. 16(C), pages 31-45.
    31. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    32. Datar, Vinay T. & Y. Naik, Narayan & Radcliffe, Robert, 1998. "Liquidity and stock returns: An alternative test," Journal of Financial Markets, Elsevier, vol. 1(2), pages 203-219, August.
    33. Fama, Eugene F. & French, Kenneth R., 2006. "Profitability, investment and average returns," Journal of Financial Economics, Elsevier, vol. 82(3), pages 491-518, December.
    34. repec:oup:rfinst:v:21:y:2017:i:4:p:1355-1401. is not listed on IDEAS
    35. Chan, Louis K C & Jegadeesh, Narasimhan & Lakonishok, Josef, 1996. "Momentum Strategies," Journal of Finance, American Finance Association, vol. 51(5), pages 1681-1713, December.
    36. Hanauer, Matthias X. & Lauterbach, Jochim G., 2019. "The cross-section of emerging market stock returns," Emerging Markets Review, Elsevier, vol. 38(C), pages 265-286.
    37. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    38. Ayadi, Mohamed A. & Cao, Xu & Lazrak, Skander & Wang, Yan, 2019. "Do idiosyncratic skewness and kurtosis really matter?," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2024. "Evaluating asset pricing anomalies: Evidence from Latin America," Research in International Business and Finance, Elsevier, vol. 70(PB).
    2. Amaya, Diego & Herrerias, Renata & Perez, Fernando & Vasquez, Aurelio, 2023. "Realized semibetas and international stock return predictability," Finance Research Letters, Elsevier, vol. 58(PC).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, December.
    2. Kewei Hou & Chen Xue & Lu Zhang, 2017. "Replicating Anomalies," NBER Working Papers 23394, National Bureau of Economic Research, Inc.
    3. Wang, Feifei & Yan, Xuemin Sterling, 2021. "Downside risk and the performance of volatility-managed portfolios," Journal of Banking & Finance, Elsevier, vol. 131(C).
    4. Cederburg, Scott & O’Doherty, Michael S. & Wang, Feifei & Yan, Xuemin (Sterling), 2020. "On the performance of volatility-managed portfolios," Journal of Financial Economics, Elsevier, vol. 138(1), pages 95-117.
    5. Kewei Hou & Haitao Mo & Chen Xue & Lu Zhang, 2019. "Which Factors?," Review of Finance, European Finance Association, vol. 23(1), pages 1-35.
    6. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    7. Tobek, Ondrej & Hronec, Martin, 2021. "Does it pay to follow anomalies research? Machine learning approach with international evidence," Journal of Financial Markets, Elsevier, vol. 56(C).
    8. Bui, Dien Giau & Kong, De-Rong & Lin, Chih-Yung & Lin, Tse-Chun, 2023. "Momentum in machine learning: Evidence from the Taiwan stock market," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    9. Joachim Freyberger & Andreas Neuhierl & Michael Weber, 2020. "Dissecting Characteristics Nonparametrically," The Review of Financial Studies, Society for Financial Studies, vol. 33(5), pages 2326-2377.
    10. Kaplanski, Guy, 2023. "The race to exploit anomalies and the cost of slow trading," Journal of Financial Markets, Elsevier, vol. 62(C).
    11. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2024. "Evaluating asset pricing anomalies: Evidence from Latin America," Research in International Business and Finance, Elsevier, vol. 70(PB).
    12. Stephen A. Gorman & Frank J. Fabozzi, 2021. "The ABC’s of the alternative risk premium: academic roots," Journal of Asset Management, Palgrave Macmillan, vol. 22(6), pages 405-436, October.
    13. Cakici, Nusret & Zaremba, Adam, 2022. "Salience theory and the cross-section of stock returns: International and further evidence," Journal of Financial Economics, Elsevier, vol. 146(2), pages 689-725.
    14. Andrew Y. Chen & Tom Zimmermann, 2022. "Open Source Cross-Sectional Asset Pricing," Critical Finance Review, now publishers, vol. 11(2), pages 207-264, May.
    15. Hanauer, Matthias X. & Kalsbach, Tobias, 2023. "Machine learning and the cross-section of emerging market stock returns," Emerging Markets Review, Elsevier, vol. 55(C).
    16. Cakici, Nusret & Zaremba, Adam & Bianchi, Robert J. & Pham, Nga, 2021. "False discoveries in the anomaly research: New insights from the Stock Exchange of Melbourne (1927–1987)," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    17. Nettayanun, Sampan, 2023. "Asset pricing in bull and bear markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    18. Yu-Chin Hsu & Hsiou-Wei Lin & Kendro Vincent, 2017. "Do Cross-Sectional Stock Return Predictors Pass the Test without Data-Snooping Bias?," IEAS Working Paper : academic research 17-A003, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    19. Jacobs, Heiko, 2015. "What explains the dynamics of 100 anomalies?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 65-85.
    20. Geertsema, Paul & Lu, Helen, 2020. "The correlation structure of anomaly strategies," Journal of Banking & Finance, Elsevier, vol. 119(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:53:y:2020:i:c:s1062940820300851. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.