Asset pricing models in emerging markets: Factorial approaches vs. information stochastic discount factor

Mariano González-Sánchez
Authors registered in the RePEc Author Service: Mariano Gonzalez Sanchez

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: The factorial asset pricing models generally performs poorly in emerging markets. This prediction bias implies anomalies. This study analyzes whether it is consequence of ignoring other source of risk. We apply a non-parametric approach (stochastic discount factor) to improve the forecasts of the usual factorial models. For a sample of 26 emerging equity markets, we find that the information portfolio built from the stochastic discount factor shows better goodness of fit of emerging market and, only the factor that accounts value stocks versus growth stocks is relevant to emerging equity markets, specifically, it is a sensitivity measure at risk.

Keywords: Asset pricing; Stochastic discount factor; Emerging equity markets; Fama–French factors model (search for similar items in EconPapers)
JEL-codes: C58 G12 G14 G15 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321003949

DOI: 10.1016/j.frl.2021.102394

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