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Firm characteristics, alternative factors, and asset-pricing anomalies: evidence from Japan

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  • Pin-Huang Chou
  • Kuan-Cheng Ko
  • Szu-Tsen Kuo
  • Shinn-Juh Lin

Abstract

Based on the errors-in-variables-free approach proposed by Brennan et al . [ J. Financial Econ. , 1998, 49 , 345--373], we investigate the competing explanatory capabilities of alternative multi-factor models when examining various asset-pricing anomalies using Japanese data for the period 1978--2006. We find that turnover and book-to-market (BM) ratio are the two major characteristics that significantly explain the average stock returns. A further sub-period analysis reveals that the turnover effect is significant only before 1990, but cannot be explained by any multifactor models. In contrast, the BM premium is significant only after 1990, and can be explained by the Fama--French three-factor model. Thus, the results suggest that asset-pricing anomalies documented in the literature are not universal, and may be different across different markets.

Suggested Citation

  • Pin-Huang Chou & Kuan-Cheng Ko & Szu-Tsen Kuo & Shinn-Juh Lin, 2012. "Firm characteristics, alternative factors, and asset-pricing anomalies: evidence from Japan," Quantitative Finance, Taylor & Francis Journals, vol. 12(3), pages 369-382, June.
    • Handle: RePEc:taf:quantf:v:12:y:2012:i:3:p:369-382
    DOI: 10.1080/14697688.2010.498429
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    Cited by:

    1. Hung, Weifeng & Huang, Sheng-Tang & Lu, Chia-Chi & Liu, Nathan, 2015. "Trading behavior and stock returns in Japan," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 200-212.
    2. Wang, Shaoping & Yu, Lu & Zhao, Qing, 2021. "Do factor models explain stock returns when prices behave explosively? Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    3. Berggrun, Luis & Cardona, Emilio & Lizarzaburu, Edmundo, 2019. "Extreme daily returns and the cross-section of expected returns: Evidence from Brazil," Journal of Business Research, Elsevier, vol. 102(C), pages 201-211.
    4. Jasman Tuyon & Zamri Ahmad, 2018. "Behavioural Asset Pricing Determinants in a Factor and Style Investing Framework," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 32-52.

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