IDEAS home Printed from https://ideas.repec.org/a/taf/rjapxx/v8y2003i3p354-379.html
   My bibliography  Save this article

Beta, Firm Size, Book-to-Market Equity and Stock Returns

Author

Listed:
  • Michael Drew

Abstract

The capital asset pricing model (CAPM), which has dominated finance theory for over thirty years, is concerned with the relationship between risk and the expected return on risky assets. According to the CAPM the market beta alone is sufficient to explain security returns and that there is a positive expected premium for investing in beta risks. However, evidence shows that the single risk factor is not quite adequate for describing the cross-section of stock returns. The current consensus is that firm size and book-to-market equity factors are pervasive risk factors besides the overall market factor. In this paper we compare the explanatory power of a single index model with the multifactor asset-pricing model of Fama and French (1996) for Hong Kong, Korea, Malaysia and the Philippines. Our findings suggest that the CAPM beta alone is not sufficient to describe the cross-section of expected returns. We also find that the absolute pricing errors of the CAPM are quite large when compared with the multifactor model of Fama and French (1996). Our findings show that firm size and book-to-market equity help explain the variation in average stock returns in a meaningful manner.

Suggested Citation

  • Michael Drew, 2003. "Beta, Firm Size, Book-to-Market Equity and Stock Returns," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 8(3), pages 354-379.
    • Handle: RePEc:taf:rjapxx:v:8:y:2003:i:3:p:354-379
    DOI: 10.1080/13547860306289
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/13547860306289
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/13547860306289?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.

    Citations

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


    Cited by:

    1. Pasaribu, Rowland Bismark Fernando, 2010. "Pemilihan Model Asset Pricing [Asset pricing model selection: Indonesian Stock Exchange]," MPRA Paper 36978, University Library of Munich, Germany.
    2. Pheng Bian Ong & Mohamed Hisham Hanifa & Mansor Mohd Isa, 2018. "Do Firm Size and Value Affect Shareholder Returns in Malaysia?," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 53-69.
    3. Nawazish Mirza & Saima Shahid, 2008. "Size and Value Premium inKarachi Stock Exchange," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 1-26, Jul-Dec.
    4. Emine Ebru AKSOY & Erginbay UÐURLU, 2015. "How did the 2007-2008 Financial Crisis Influence Turkish Firms," Journal of Economics and Political Economy, KSP Journals, vol. 2(4), pages 494-506, December.
    5. Jannatul Ferdaous & Senjuti Barua, 2020. "Firm-Specific Factors and Stock Returns: Evidence from Selected Private Commercial Banks Listed on the Dhaka Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(11), pages 1259-1268, November.
    6. Bee-Hoong Tay & Pei-Tha Gan, 2016. "The Determinants of Investment Rewards: Evidence for Selected Developed and Developing Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1180-1188.
    7. Lischewski, Judith & Voronkova, Svitlana, 2012. "Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?," Emerging Markets Review, Elsevier, vol. 13(1), pages 8-25.
    8. Senjuti Barua, 2020. "Firm Level Characteristics and Stock Returns: Evidence from Selected Insurance Companies Listed on the Dhaka Stock Exchange," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(12), pages 1356-1365, December.
    9. ALAM Nafis & TAN Ee Chain, 2012. "Impact Of Financial Crisis On Stock Returns: Evidence From Singapore," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 7(2), pages 5-19, August.
    10. Chen, Tsung-Cheng & Chien, Chin-Chen, 2011. "Size effect in January and cultural influences in an emerging stock market: The perspective of behavioral finance," Pacific-Basin Finance Journal, Elsevier, vol. 19(2), pages 208-229, April.
    11. Ailie Charteris & Mukashema Rwishema & Tafadzwa-Hidah Chidede, 2018. "Asset Pricing and Momentum: A South African Perspective," Journal of African Business, Taylor & Francis Journals, vol. 19(1), pages 62-85, January.
    12. Shum, Wai Cheong & Tang, Gordon Y.N., 2005. "Common risk factors in returns in Asian emerging stock markets," International Business Review, Elsevier, vol. 14(6), pages 695-717, December.
    13. Sunil Kumar Bundoo, 2008. "An augmented Fama and French three-factor model: new evidence from an emerging stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 15(15), pages 1213-1218.
    14. Chaibi Hasna & Ben Naceur Sami, 2010. "The Best Asset Pricing Model for Estimating Industry Costs of Equity in Tunisia," Review of Middle East Economics and Finance, De Gruyter, vol. 5(3), pages 63-90, February.
    15. Ayesha Afzal & Nawazish Mirza, 2011. "Size and Value Premium in International Portfolios: Evidence from 15 European Countries," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(2), pages 173-190, June.
    16. Keith Lam & Frank Li & Simon So, 2010. "On the validity of the augmented Fama and French’s (1993) model: evidence from the Hong Kong stock market," Review of Quantitative Finance and Accounting, Springer, vol. 35(1), pages 89-111, July.
    17. Yu, Huaibing, 2022. "Does sustainable competitive advantage make a difference in stock performance during the Covid-19 pandemic?," Finance Research Letters, Elsevier, vol. 48(C).
    18. Hearn, Bruce & Piesse, Jenifer & Strange, Roger, 2010. "Market liquidity and stock size premia in emerging financial markets: The implications for foreign investment," International Business Review, Elsevier, vol. 19(5), pages 489-501, October.
    19. M. Eskandar Shah & Sourafel Girm & R. Hudson, 2012. "Rationalizing the Value Premium under Economic Fundamentals in an Emerging Market," Working Papers 12010, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).

    More about this item

    Statistics

    Access and download statistics

    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:taf:rjapxx:v:8:y:2003:i:3:p:354-379. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/rjap .

    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.