Trading activities and cross-sectional variation in stock expected return : evidence from Kuala Lumpur stock exchange

Trading activity has been considered as one of the possible factor that explains the cross-sectional variation in stock returns. In this study I use trading volume as a possible measure to proxy for liquidity as part of the trading activity. Monthly observations were used over a period 1995 to 2005 to examine the liquidity effect on stock expected returns. Based on findings it is appeared that level of liquidity does matter in explaining the expected stock returns in Malaysian capital market. While Fama-french factors also provide important explanation for stock returns. But none of the second moment variables proxying liquidity appeared to be statistically significant. However, momentum effect apprearently explain ing the cross-sectional variation in stock returns. 

Are the Fama–French factors proxying news related to GDP growth? The Australian evidence.

Inspired by Vassalou (J Financ Econ 68:47&ndash;73, 2003), we investigate the contention that the Fama and French (J Financ Econ 33:3&ndash;56, 1993) model&rsquo;s ability to explain the cross sectional variation in equity returns is because the Fama&ndash;French factors are proxying for risk associated with future GDP growth in the Australian equities market. To assess the validity of Vassalou&rsquo;s findings, we augment the CAPM and the Fama&ndash;French model with a GDP growth factor and run system regressions of the GDP-enhanced models using the GMM approach. Our results suggest that news about future GDP growth is not priced in equity returns and that any ability that SMB and HML exhibit in explaining equity returns is not because they contain information about future GDP growth. <br />

An examination of conditional asset pricing models in the Australian equities market

This article examines the link between macroeconomic variables and equity returns in Australia by testing conditional asset pricing models. We find that conditioning the Fama-French model with a series of macroeconomic variables does not considerably improve its performance. However, we do find that the Fama-French factors, SMB and HML, retain their ability to explain equity returns even after the model is conditioned on macroeconomic variables. Our findings suggest that investors do not adjust their risk premiums according to the changes in the macroeconomic variables we employ.<br />

Pricing innovations in consumption growth: a re-evaluation of the recursive utility model

We re-evaluate the cross-sectional asset pricing implications of the recursive utility function of Epstein and Zin, 1989 and Epstein and Zin, 1991, using innovations in future consumption growth in our tests. Our empirical specification helps explain the size, value and momentum effects. Specifically, we find that (Ñ–) the beta associated with news about consumption growth has a systematic pattern: beta decreases along the size dimension and increases along the book-to-market and momentum dimensions, (Ñ–Ñ–) innovation in consumption growth is significantly priced in asset returns using both the Fama and MacBeth (1973) and the stochastic discount factor approaches, and (Ñ–Ñ–Ñ–) the model performs better than both the CAPM and Fama&ndash;French model.

An empirical study of the world price of sustainability

The core goal of this study is to empirically investigate whether there is a &ldquo;world price&rdquo; of corporate sustainability. This is assessed in the context of standard asset pricing models&mdash;in particular, by asking whether a risk premium attaches to a sustainability factor after controlling for the Fama&ndash;French factors. Both time-series and cross-sectional tests are formulated and applied. The results show that (1) global Fama&ndash;French factors have strong power to explain global equity returns and (2) sustainability investments have no significant impact on global equity returns. The absence of a significant relationship between sustainability and returns implies that large institutional investors are free to implement sustainability mandates without fear of breaching their fiduciary duties from realising negative returns due to incorporating a sustainability investment process.<br />

Non-nested tests of a GDP-augmented Fama–French model versus a conditional Fama–French model in the Australian stock market

We extend Vassalou (2003) by conditioning the Fama&ndash;French model with the same macroeconomic variables used to construct a GDP factor. The motivation for doing so is to ascertain whether the ability of the GDP-augmented model to explain equity returns is actually due to news about future GDP growth or whether it is due to the macroeconomic conditioning variables used to construct the GDP factor. We compare the performance of a GDP-enhanced Fama&ndash;French model with the conditional Fama&ndash;French model using non-nested testing techniques. We find that the GDP-augmented model considerably underperforms the conditional version of the model.