The Australian asset-pricing debate

Robert B. Durand, Manapon Limkriangkrai, Daniel Chai and David Gallagher

Accounting and Finance, 2016, vol. 56, issue 2, 393-421

Abstract: type="main" xml:id="acfi12097-abs-0001">

Utilising a comprehensive data set for Australian firms, we examine a range of competing asset-pricing models, including the four- and five-factor models where the equity-risk premium is augmented by size, value, momentum and liquidity premia, and find that none of the models tested appears to adequately explain the cross section of Australian returns. A model accounting for Australia's integration with the US equity market appears to be the best of the competing models we study. Our argument that a model recognising Australia's integration with the USA is supported when we apply the portfolio and factor construction methodology suggested by Brailsford et al. (2012a,b).

Date: 2016
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