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Important Factors of Estimated Return and Risk: The Taiwan Evidence

Author

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  • Kuang-Ping Ku

    (Department of Finance and Applications, Tamkang University, Taipei, Taiwan, R.O.C)

  • William T. Lin

    (Department of Finance and Applications, Tamkang University, Taipei, Taiwan, R.O.C)

Abstract

This paper seeks to identify which factors are important for estimating portfolio's expected return and standard deviation in the Taiwan stock market. We have summarized from the existing empirical literature a total of 26 factors that may have explanatory power. The results of our evaluation show that except for the trading volume, the remaining 25 factors do not seem to help explain the average stock returns during the July 1985–June 1999 period. However, the power of the trading volume to account for the expected returns on the stock is affected by any changes in the sample or by the use of a different evaluation model. We suggest three potential explanations of why all 26 factors show no stable power to explain average returns on Taiwan stocks: high volatility, selection bias, and market differences. Moreover, we find that all of the 26 factors are important in capturing the systematic covariation in stock returns.

Suggested Citation

  • Kuang-Ping Ku & William T. Lin, 2002. "Important Factors of Estimated Return and Risk: The Taiwan Evidence," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 5(01), pages 71-92.
    • Handle: RePEc:wsi:rpbfmp:v:05:y:2002:i:01:n:s0219091502000675
    DOI: 10.1142/S0219091502000675
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    More about this item

    Keywords

    Factor model; Expected return; Risk; Taiwan;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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