Can institutions and macroeconomic factors predict stock returns in emerging markets?
Paresh Narayan (),
Seema Narayan () and
Kannan Thuraisamy ()
Emerging Markets Review, 2014, vol. 19, issue C, 77-95
In this paper we test for predictability of excess stock returns for 18 emerging markets. Using a range of macroeconomic and institutional factors, through a principal component analysis, we find some evidence of in-sample predictability for 15 countries. In-sample predictability is corroborated by out-of-sample tests. Using a mean-variance investor framework, we show that investors in most of these emerging markets can make significant profits from dynamic trading strategies. Finally, we show that investors in most countries where short-selling is prohibited could make significant gains if limited borrowing and short-selling were allowed.
Keywords: Predictability; Returns; Mean-variance investor; Institutions (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:19:y:2014:i:c:p:77-95
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