Long-term Prior Return Patterns in Stock Returns: Evidence from Emerging Markets

Sanjay Sehgal, Sakshi Jain and Pr Laurence the Porteu de la Morandiere

The International Journal of Business and Finance Research, 2013, vol. 7, issue 2, 53-78

Abstract: In this paper, we identify long-term prior return patterns in stock returns for Brazil, Russia, India, China, South Korea, and South Africa (BRICKS) markets from January 1993 to February 2008. While Brazil, Russia and South Africa report momentum behavior, India, China and South Korea exhibit contrarian patterns for long-term prior return (24-60 months) as well as company characteristic(s) and prior return based portfolios. The CAPM is a poor descriptor of asset pricing as it doesn’t explain abnormal returns on these trading strategies for India and South Korea. It works well for other markets only for 24 and 36 months portfolio formation windows. The Fama-French (FF) model is able to explain most of the abnormal returns except 24-12-12 strategy for China and South Africa and 36-12-12 strategy for India. We find long-term prior return patterns in sector returns and that our augmented FF model, which contains a prior return sector factor, does a better job than the FF model. The research contributes to asset pricing and behavioral finance literature for emerging markets. Our findings shall be useful for global portfolio managers who analyze emerging markets, to combine them with mature markets for achieving risk diversification benefits.

Keywords: CAPM; Momentum; Contrarian; Fama French Model; Behavioral Finance (search for similar items in EconPapers)
JEL-codes: C51 C52 G12 G14 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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