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Determinants of the cross-sectional stock returns in Korea: evaluating recent empirical evidence

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  • Hahn, Jaehoon
  • Yoon, Heebin

Abstract

This paper provides empirical evaluation of recently proposed determinants of the cross-sectional stock returns in Korea, taking into account recent critique of empirical asset pricing literature such as the low power of test diagnostics and the bias induced by noise in prices. We do not find convincing empirical evidence supporting the Fama-French three-factor model as a benchmark asset pricing model for risk adjustment. In addition, empirical evidence indicates that the bias induced by noisy prices is substantial enough in mean returns of equal-weighted portfolios to change the economic and statistical significance of the estimated risk premium for factor portfolios, suggesting that researchers exercise caution in designing factor portfolios and interpreting results.

Suggested Citation

  • Hahn, Jaehoon & Yoon, Heebin, 2016. "Determinants of the cross-sectional stock returns in Korea: evaluating recent empirical evidence," Pacific-Basin Finance Journal, Elsevier, vol. 38(C), pages 88-106.
    • Handle: RePEc:eee:pacfin:v:38:y:2016:i:c:p:88-106
    DOI: 10.1016/j.pacfin.2016.03.006
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    Cited by:

    1. Lee, Eun Jung & Lee, Yu Kyung & Kim, Ryumi, 2022. "Investor attention and the risk-return trade-off," Finance Research Letters, Elsevier, vol. 47(PA).
    2. Ben Said Hatem, 2017. "How Can We Increase Shareholder' Wealth? An Empirical Validation from European Countries," Business and Economic Research, Macrothink Institute, vol. 7(1), pages 323-335, June.
    3. Serge Rugwiro & SungSup Brian Choi, 2019. "Re-examination of Fama–French Models in the Korean Stock Market," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(1), pages 23-45, March.

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    More about this item

    Keywords

    empirical asset pricing; liquidity; share turnover; Fama-Macbeth regression; GMM;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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