Determinants of the cross-sectional stock returns in Korea: evaluating recent empirical evidence

Jaehoon Hahn and Heebin Yoon

Pacific-Basin Finance Journal, 2016, vol. 38, issue C, 88-106

Abstract: This paper provides empirical evaluation of recently proposed determinants of the cross-sectional stock returns in Korea, taking into account recent critique of empirical asset pricing literature such as the low power of test diagnostics and the bias induced by noise in prices. We do not find convincing empirical evidence supporting the Fama-French three-factor model as a benchmark asset pricing model for risk adjustment. In addition, empirical evidence indicates that the bias induced by noisy prices is substantial enough in mean returns of equal-weighted portfolios to change the economic and statistical significance of the estimated risk premium for factor portfolios, suggesting that researchers exercise caution in designing factor portfolios and interpreting results.

Keywords: empirical asset pricing; liquidity; share turnover; Fama-Macbeth regression; GMM (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:38:y:2016:i:c:p:88-106

DOI: 10.1016/j.pacfin.2016.03.006

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