Local Return Factors and Turnover in Emerging Stock Markets

Authors

  • K. Geert Rouwenhorst

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    • Yale School of Management, Yale University. I thank Geert Bekaert, Steve Buser, John Chalmers, Ken French, Campbell Harvey, Theo Nijman, N. Prabhala, Jeremy Stein, Raman Uppal, and seminar participants at 1999 ASSA Meetings, the Berkeley Program in Finance, Dartmouth, the 1998 European Finance Meetings, the Harvard Business School, H.E.C., Ohio State University, M.LT., the 1998 NBER Summer Institute, Indiana University, Tilburg University, the University of Illinois at Urbana-Campaign, the University of Southern California, the University of Virginia, and Yale University for helpful discussions and comments. Part of this research was conducted while I was visiting M.LT.

Abstract

The factors that drive cross-sectional differences in expected stock returns in emerging equity markets are qualitatively similar to those that have been documented for developed markets. Emerging market stocks exhibit momentum, small stocks outperform large stocks, and value stocks outperform growth stocks. There is no evidence that high beta stocks outperform low beta stocks. A Bayesian analysis of the return premiums shows that the combined evidence of developed and emerging markets strongly favors the hypothesis that similar return factors are present in markets around the world. Finally, there exists a strong cross-sectional correlation between the return factors and share turnover.

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