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Asset pricing models in emerging markets: Factorial approaches vs. information stochastic discount factor

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  • González-Sánchez, Mariano

Abstract

The factorial asset pricing models generally performs poorly in emerging markets. This prediction bias implies anomalies. This study analyzes whether it is consequence of ignoring other source of risk. We apply a non-parametric approach (stochastic discount factor) to improve the forecasts of the usual factorial models. For a sample of 26 emerging equity markets, we find that the information portfolio built from the stochastic discount factor shows better goodness of fit of emerging market and, only the factor that accounts value stocks versus growth stocks is relevant to emerging equity markets, specifically, it is a sensitivity measure at risk.

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  • González-Sánchez, Mariano, 2022. "Asset pricing models in emerging markets: Factorial approaches vs. information stochastic discount factor," Finance Research Letters, Elsevier, vol. 46(PB).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003949
    DOI: 10.1016/j.frl.2021.102394
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    More about this item

    Keywords

    Asset pricing; Stochastic discount factor; Emerging equity markets; Fama–French factors model;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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