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Do the Size, Value, and Momentum Factors Drive Stock Returns in Emerging Markets?

Last Updated on 10 February, 2024 by Rejaul Karim

In the paper “Do the Size, Value, and Momentum Factors Drive Stock Returns in Emerging Markets?” by Nusret Cakici, Yi Tang, and An Yan, the authors seek to unravel the effectiveness of size, value, and momentum factors in shaping stock returns across 18 emerging markets from 1990 to 2013.

The research reveals the varying success levels of these factors in producing superior returns, with size and momentum strategies proving to be generally ineffective in emerging markets. However, the value effect is found to be persistent, excluding Brazil as an exception.

Furthermore, the study explores the stability of value premiums over diverse periods and under different market conditions, demonstrating an increasing positive inter-market co-movement, especially during the global financial crisis.

This paper’s findings present invaluable knowledge on understanding the impact of size, value, and momentum factors on stock returns in emerging markets.

Abstract Of Paper

This paper investigates the size, value and momentum effects in 18 emerging stock markets during the period 1990-2013. We find that size and momentum strategies generally fail to generate superior returns in emerging markets. The value effect exists in all markets except Brazil, and it is robust to different periods and market conditions. Value premiums tend to move positively together across different markets, and such inter-market co-movements increase overtime and during the global financial crisis.

Original paper – Download PDF

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Author

Nusret Cakici
Fordham university

Yi Tang
Fordham University – Gabelli School of Business

An Yan
Fordham University – Gabelli School of Business

Conclusion

In summary, the research paper “Do the Size, Value, and Momentum Factors Drive Stock Returns in Emerging Markets?” by Nusret Cakici, Yi Tang, and An Yan offers a thorough exploration of size, value, and momentum effects on stock returns across 18 emerging markets during the 1990-2013 period.

The findings reveal that size and momentum strategies are generally unsuccessful in generating superior returns, while the value effect is largely prevalent—except in Brazil—and remains robust amidst varying timeframes and market conditions.

Additionally, the study highlights the consistent positive co-movements of value premiums across different markets, with this inter-market relationship intensifying over time and during the global financial crisis.

These findings present a valuable addition to the financial literature, enhancing the understanding of the influence of size, value, and momentum factors on stock returns in emerging markets.

Related Reading:

Has Momentum Lost Its Momentum?

Size and Momentum Profitability in International Stock Markets

FAQ

Q1: What are the key takeaways regarding the effectiveness of size, value, and momentum strategies in emerging markets according to the research paper?

The research paper indicates that size and momentum strategies generally do not lead to superior returns in emerging markets. However, the value factor proves to be persistent and robust, generating positive returns across various markets, timeframes, and market conditions, with the exception of Brazil.

Q2: How does the study contribute to understanding the behavior of value premiums in emerging markets, and what is the significance of the positive inter-market co-movement observed?

The study contributes by revealing that value premiums tend to move positively together across different emerging markets. The increasing positive inter-market co-movement of value premiums over time and during the global financial crisis provides valuable insights into the behavior of these premiums under different conditions, offering a more comprehensive understanding of their dynamics.

Q3: What implications do the findings have for investors and practitioners interested in factor-based investing in emerging markets?

For investors and practitioners, the findings suggest that while size and momentum strategies may not be consistently effective, the value factor remains a robust and persistent driver of stock returns in emerging markets. Understanding the exceptions, such as the case of Brazil, and recognizing the positive co-movements of value premiums can inform more informed investment strategies and decisions in the context of emerging markets.

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