Comparing competing factor and characteristics models: Evidence in Japan

Pin-Huang Chou, Kuan-Cheng Ko and S. Ghon Rhee

Pacific-Basin Finance Journal, 2023, vol. 82, issue C

Abstract: The main purpose of this study is to simultaneously compare the explanatory abilities of various firm characteristics and factor models in the Japanese stock market. We show that the factor models developed by Fama and French (1993, 2015, 2018), Carhart (1997), and Hou et al. (2015) all fail to be priced in Japan. In addition, value and operating profitability anomalies are prevalent in Japan, while size, investment, and momentum effects are not. Our findings are in line with what is indicated in the existing literature: the characteristics model associated with value and operating profitability better describes the cross-sectional variations of stock returns than factor models in Japan.

Keywords: Asset pricing models; Asset pricing anomalies; Errors-in-variables bias; Instrumental variables; Japanese market (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:82:y:2023:i:c:s0927538x23002500

DOI: 10.1016/j.pacfin.2023.102179

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