Tests of Multifactor Asset Pricing Models in Asian Stock Markets

Abstract

This chapter examines a multifactor model for stock returns in nine Asian markets (Japan, China, South Korea, Hong Kong, Taiwan, Singapore, Indonesia, Malaysia, and Thailand). The authors develop a model using the market risk premium, size, book-to-market, profitability, investment, momentum, price-to-earnings ratio, and dividend yield factors for each market. The empirical results suggest that this eight-factor model can better explain the variations of stock returns than the original Fama–French three-factor model. Factor-based models using local data outperform those using data from US markets. In addition, the evidence suggests that the eight-factor model can better explain stock returns when the market is under stress.

Citation

Zheng, D., Chiang, T.C. and Nelling, E. (2020), "Tests of Multifactor Asset Pricing Models in Asian Stock Markets", Jeon, B.N. and Wu, J. (Ed.) Emerging Market Finance: New Challenges and Opportunities (International Finance Review, Vol. 21), Emerald Publishing Limited, Leeds, pp. 165-183. https://doi.org/10.1108/S1569-376720200000021010